RACE 20-F DEF-14A Report Dec. 31, 2019 | Alphaminr
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RACE 20-F Report ended Dec. 31, 2019

Balance Sheet
Cash Flow
Income Statement
Debt
20-F 1 ferrarinv20-f12312019.htm 20-F Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37596
Ferrari N.V.
(Exact Name of Registrant as Specified in Its Charter)
The Netherlands
(Jurisdiction of Incorporation or Organization)
Via Abetone Inferiore n. 4
I-41053 Maranello (MO)
Italy
Tel. No.: +39 0536 949111
(Address of Principal Executive Offices)


Antonio Picca Piccon
Tel. No.: +39 0536 949111
Facsimile No.: +39 0536 241494
Via Abetone Inferiore n. 4 I-41053 Maranello (MO) Italy
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Ordinary Shares (par value of €0.01 each)
RACE
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 185,283,323 common shares, par value €0.01 per share, and 63,346,921 special voting shares, par value €0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Emerging growth company o
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board þ Other o
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow: Item 17 o or Item 18 o .
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o




TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
A.
B.
C.
D.
Item 4.
A.
B.
C.
D.
Item 4A.
Item 5.
A.
B.
C.
D.
E.
F.
G.
Item 6.
A.
B.
C.
D.
E.
Item 7.
A.
B.
C.


Item 8.
A.
B.
Item 9.
A.
B.
C.
D.
E.
F.
Item 10.
A.
B.
C.
D.
E.
F.
G.
H.
I.
Item 11.
Item 12.
A.
B.
C.
D.
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
Item 17.
Item 18.
Item 19.


Certain Defined Terms
In this report, unless otherwise specified, the terms “we”, “our”, “us”, the “Group”, the “Company” and “Ferrari” refer to Ferrari N.V., individually or together with its subsidiaries, as the context may require. References to “Ferrari N.V.” refer to the registrant.

Note on Presentation
This document includes the consolidated financial statements of Ferrari N.V. as of December 31, 2019 and 2018 , and for the years ended December 31, 2019 , 2018 and 2017 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. The designation IFRS also includes International Accounting Standards (“IAS”) as well as all the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC” and “SIC”). We refer to these consolidated financial statements collectively as the “Consolidated Financial Statements”.
Basis of Preparation of the Consolidated Financial Statements
The Group’s financial information is presented in Euro. In some instances, information is presented in U.S. Dollars. All references in this document to “Euro” and “€” refer to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended, and all references to “U.S. Dollars” and “$” refer to the currency of the United States of America (the “United States”).

The language of this document is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.
Certain totals in the tables included in this document may not add due to rounding.

I


Forward-Looking Statements
Statements contained in this report, particularly those regarding our possible or assumed future performance, competitive strengths, costs, dividends, reserves and growth, industry growth and other trends and projections and estimated company earnings are “forward-looking statements” that contain risks and uncertainties. In some cases, words such as “may”, “will”, “expect”, “could”, “should”, “intend”, “estimate”, “anticipate”, “believe”, “outlook”, “continue”, “remain”, “on track”, “design”, “target”, “objective”, “goal”, “plan” and similar expressions are used to identify forward-looking statements. These forward-looking statements reflect the respective current views of Ferrari with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These factors include, without limitation:

•
our ability to preserve and enhance the value of the Ferrari brand;
•
the success of our Formula 1 racing team and the expenses we incur for our Formula 1 activities, the impact of the application of the new Formula 1 rules coming into effect in 2021, as well as the popularity of Formula 1 more broadly;
•
our ability to keep up with advances in high performance car technology and to make appealing designs for our new models;
•
our ability to preserve our relationship with the automobile collector and enthusiast community;
•
changes in client preferences and automotive trends;
•
changes in the general economic environment, including changes in some of the markets in which we operate, and changes in demand for luxury goods, including high performance luxury cars, which is highly volatile;
•
competition in the automotive and luxury industries;
•
our ability to successfully carry out our growth strategy and, particularly, our ability to grow our presence in growth and emerging market countries;
•
the effects of Brexit;
•
our low volume strategy;
•
reliance upon a number of key members of executive management and employees, and the ability of our current management team to operate and manage effectively;
•
the performance of our dealer network on which we depend for sales and services;
•
increases in costs, disruptions of supply or shortages of components and raw materials;
•
disruptions at our manufacturing facilities in Maranello and Modena;
•
the performance of our licensees for Ferrari-branded products;
•
our ability to protect our intellectual property rights and to avoid infringing on the intellectual property rights of others;
•
the ability of Maserati, our engine customer, to sell its planned volume of cars;
•
our continued compliance with customs regulations of various jurisdictions;
•
the impact of increasingly stringent fuel economy, emissions and safety standards, including the cost of compliance, and any required changes to our products;
•
the challenges and costs of integrating hybrid and electric technology more broadly into our car portfolio over time;
•
product warranties, product recalls and liability claims;
•
the adequacy of our insurance coverage to protect us against potential losses;
•
our ability to ensure that our employees, agents and representatives comply with applicable law and regulations;

II


•
our ability to maintain the functional and efficient operation of our information technology systems, including our ability to defend from the risk of cyberattacks, including on our in-vehicle technology;
•
our ability to service and refinance our debt;
•
our ability to provide or arrange for adequate access to financing for our dealers and clients, and associated risks;
•
labor relations and collective bargaining agreements;
•
exchange rate fluctuations, interest rate changes, credit risk and other market risks;
•
changes in tax, tariff or fiscal policies and regulatory, political and labor conditions in the jurisdictions in which we operate, including possible future bans of combustion engine cars in cities and the potential advent of self-driving technology;
•
potential conflicts of interest due to director and officer overlaps with our largest shareholders; and
•
other factors discussed elsewhere in this document.
We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the forward-looking statements in this document or in connection with any use by any third party of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.

Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section “Item 3.D. Risk Factors ” of this report. These factors may not be exhaustive and should be read in conjunction with the other cautionary statements included in this report. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.




III


PART I

Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected Financial Data
The following tables set forth selected historical consolidated financial and other data of Ferrari and have been derived from:
(i)
the audited Consolidated Financial Statements, included elsewhere in this document;
(ii)
the audited consolidated income statement of the Company for the years ended December 31, 2016 and 2015 and the audited consolidated statement of financial position at December 31, 2017 , 2016 and 2015 .
This financial information has been prepared in accordance with IFRS.
For the purposes of the financial information set forth in this section, the restructuring activities undertaken as part of the separation from FCA (the “Separation”) have been retrospectively reflected as though it had occurred effective January 1, 2015, with the exception of the debt owing to FCA and subsequent refinancing, which were reflected from the dates on which they occurred. References to “FCA” or “FCA Group” refer to Fiat Chrysler Automobiles N.V., together with its subsidiaries. See “ Item 4.A. History and Development of the Company” for additional details regarding the Separation.
The following information should be read in conjunction with “Note on Presentation”, “Item 3.D. Risk Factors ”, “Item 5. Operating and Financial Review and Prospects ” and the Consolidated Financial Statements included elsewhere in this document. Historical results for any period are not necessarily indicative of results for any future period.

1


Consolidated Income Statement Data
For the years ended December 31,
2019
2018
2017
2016
2015
(€ million, except per share data)
Net revenues
3,766

3,420

3,417

3,105

2,854

EBIT
917

826

775

595

444

Profit before taxes
875

803

746

567

434

Net profit
699

787

537

400

290

Net profit attributable to:
Owners of the parent
696

785

535

399

288

Non-controlling interests
3

2

2

1

2

Basic earnings per common share (€) (1) (2)
3.73

4.16

2.83

2.11

1.52

Diluted earnings per common share (€) (1) (2) (3)
3.71

4.14

2.82

2.11

1.52

Dividend approved per common share (€) (4) (5)
1.03

0.71

—

—

—

Dividend approved per common share ($) (4) (5) (6)
1.16

0.88

—

—

—

Distribution approved per common share (€) (7) (8)
—

—

0.635

0.46

—

Distribution approved per common share ($) (6) (7) (8)
—

—

0.682

0.52

—

_____________________________
(1)
For 2015, retrospectively reflects the issuance of 188,923,499 common shares as if the Separation had occurred on January 1, 2015. See also Note 12 to the Consolidated Financial Statements.
(2)
The increase in the basic and diluted earnings per common share in 2018 compared to 2017 includes the effects of applying the Patent Box tax regime starting in the third quarter of 2018. See Adjusted Basic and Diluted Earnings per Common Share for 2018 in the section “ Non-GAAP Financial Measures ” as well as Note 10 to the Consolidated Financial Statements, both included elsewhere in this document, for additional information.
(3)
In order to calculate the diluted earnings per common share the weighted average number of shares outstanding has been increased to take into consideration the theoretical effect of (i) the potential common shares that would have been issued under the equity incentive plan for the years ended December 31, 2019, 2018 and 2017 (assuming 100 percent of the related awards vested), and (ii) the potential common shares that would have been issued for the Non-Executive Directors’ compensation agreement for the years ended December 31, 2017 and 2016. For the year ended December 31, 2015 there were no potentially dilutive instruments. See Note 12 to the Consolidated Financial Statements for additional information.
(4)
Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 12, 2019, a dividend distribution of €1.03 per outstanding common share was approved, corresponding to a total distribution of €193 million. The distribution was made from the retained earnings reserve.
(5)
Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 13, 2018, a dividend distribution of €0.71 per outstanding common share was approved, corresponding to a total distribution of €134 million. The distribution was made from the retained earnings reserve.
(6)
Translated into U.S. Dollars at the exchange rates in effect on the dates on which the distribution was declared in U.S. Dollars for common shares that are traded on the New York Stock Exchange. These translations are examples only, and should not be construed as a representation that the Euro amount represents, or has been or could be converted into, U.S. Dollars at that or any other rate.
(7)
Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 14, 2017, a cash distribution
of €0.635 per outstanding common share was approved, corresponding to a total distribution of €120 million. The distribution was made from the share premium reserve which is a distributable reserve under Dutch law.
(8)
Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 15, 2016, a cash distribution of €0.46 per outstanding common share was approved, corresponding to a total distribution of €87 million. The distribution was made from the share premium reserve which is a distributable reserve under Dutch law.



2


Consolidated Statement of Financial Position Data
At December 31,
2019
2018
2017
2016
2015
(€ million, except number of shares issued)
Cash and cash equivalents
898

794

648

458

183

Deposits in FCA Group cash management pools (1)
—

—

—

—

139

Total assets
5,446

4,852

4,141

3,850

3,875

Debt
2,090

1,927

1,806

1,848

2,260

Total equity/(deficit) (2)
1,487

1,354

784

330

(19
)
Equity/(Deficit) attributable to owners of the parent
1,481

1,349

779

325

(25
)
Non-controlling interests
6

5

5

5

6

Share capital
3

3

3

3

4

Common shares issued and outstanding (in thousands of shares) (3)
185,283

187,921

188,954

188,923

188,923

_____________________________
(1)
Deposits in FCA Group cash management pools related to our participation in a group-wide cash management system at FCA prior to the Separation, where the operating cash management, main funding operations and liquidity of the Group were centrally coordinated by dedicated treasury companies with the objective of ensuring effective and efficient management of our funds. Following the completion of the Separation on January 3, 2016, these arrangements were terminated and we manage our liquidity and treasury function on a standalone basis.
(2)
The deficit at December 31, 2015 is a result of the effects of the restructuring activities undertaken as part of the Separation.
(3)
For 2015, the number of common shares issued retrospectively reflects the issuance of common shares (net of treasury shares), all with a nominal value of €0.01, as if the Separation had occurred on January 1, 2015.


Other Statistical Information
For the years ended December 31,
2019
2018
2017
2016
2015
Shipments (number of cars)
10,131

9,251

8,398

8,014

7,664

Average number of employees for the period
4,164

3,651

3,336

3,115

2,954


B. Capitalization and Indebtedness
Not applicable.

C. Reason for the Offer and Use of Proceeds
Not applicable.


3


D. Risk Factors
We face a variety of risks and uncertainties in our business. Those described below are not the only risks and uncertainties that we face. Additional risks and uncertainties that we are unaware of, or that we currently believe to be immaterial, may also become important factors that affect us.
Risks Related to Our Business, Strategy and Operations
We may not succeed in preserving and enhancing the value of the Ferrari brand, which we depend upon to drive demand and revenues.
Our financial performance is influenced by the perception and recognition of the Ferrari brand, which, in turn, depends on many factors such as the design, performance, quality and image of our cars, the appeal of our dealerships and stores, the success of our promotional activities including public relations and marketing, as well as our general profile, including our brand’s image of exclusivity. The value of our brand and our ability to achieve premium pricing for Ferrari-branded products may decline if we are unable to maintain the value and image of the Ferrari brand, including, in particular, its aura of exclusivity. Maintaining the value of our brand will depend significantly on our ability to continue to produce luxury performance cars of the highest quality. The market for luxury goods generally and for luxury automobiles in particular is intensely competitive, and we may not be successful in maintaining and strengthening the appeal of our brand. Client preferences, particularly among luxury goods, can vary over time, sometimes rapidly. We are therefore exposed to changing perceptions of our brand image, particularly as we seek to attract new generations of clients and, to that end, we continuously renovate and expand the range of our models. For example, the gradual expansion of hybrid engine and electric engine technology (already integrated in past models such as the LaFerrari and the LaFerrari Aperta, as well as in the new SF90 Stradale) will introduce a notable change in the overall driver experience compared to the combustion engine cars of our models to date. Any failure to preserve and enhance the value of our brand may materially and adversely affect our ability to sell our cars, to maintain premium pricing, and to extend the value of our brand into other activities profitably or at all.
We selectively license the Ferrari brand to third parties that produce and sell Ferrari-branded luxury goods and therefore we rely on our licensing partners to preserve and enhance the value of our brand. If our licensees or the manufacturers of these products do not maintain the standards of quality and exclusivity that we believe are consistent with the Ferrari brand, or if such licensees or manufacturers otherwise misuse the Ferrari brand, our reputation and the integrity and value of our brand may be damaged and our business, operating results and financial condition may be materially and adversely affected. In addition, we have recently announced a brand diversification strategy that will significantly increase the deployment of our brand in non-car products and experiences. If this strategy is not successful, our brand image may be diluted or tainted.
Our brand image depends in part on the success of our Formula 1 racing team.
The prestige, identity, and appeal of the Ferrari brand depend in part on the continued success of the Scuderia Ferrari racing team in the Formula 1 World Championship. The racing team is a key component of our marketing strategy and may be perceived by our clients as a demonstration of the technological capabilities of our sports, GT, special series and Icona cars, which also supports the appeal of other Ferrari-branded luxury goods. We have focused on restoring the success of our Formula 1 racing team as our most recent Drivers’ Championship and Constructors’ Championship were in 2007 and 2008, respectively. We are focused on improving our racing results and restoring our historical position as the premier racing team. If we are unable to attract and retain the necessary talent to succeed in international competitions or devote the capital necessary to fund successful racing activities, the value of the Ferrari brand and the appeal of our cars and other luxury goods may suffer. Even if we are able to attract such talent and adequately fund our racing activities, there is no assurance that this will lead to competitive success for our racing team.
The success of our racing team depends in particular on our ability to attract and retain top drivers, racing team management and engineering talent. Our primary Formula 1 drivers, team managers and other key employees of Scuderia Ferrari are critical to the success of our racing team and if we were to lose their services, this could have a material adverse effect on the success of our racing team and correspondingly the Ferrari brand. If we are unable to find adequate replacements or to attract, retain and incentivize drivers and team managers, other key employees or new qualified personnel, the success of our racing team may suffer. As the success of our racing team forms a large part of our brand identity, a sustained period without racing success could detract from the Ferrari brand and, as a result, potential clients’ enthusiasm for the Ferrari brand and their perception of our cars, which could have an adverse effect on our business, results of operations and financial condition.

4


If we are unable to keep up with advances in high performance car technology, our brand and competitive position may suffer.
Performance cars are characterized by leading-edge technology that is constantly evolving. In particular, advances in racing technology often lead to improved technology in road cars. Although we invest heavily in research and development, we may be unable to maintain our leading position in high performance car technology and, as a result, our competitive position may suffer. As technologies change, we plan to upgrade or adapt our cars and introduce new models in order to continue to provide cars with the latest technology. However, our cars may not compete effectively with our competitors’ cars if we are not able to develop, source and integrate the latest technology into our cars. For example, in the next few years luxury performance cars will increasingly transition to hybrid and electric technology, albeit at a slower pace compared to mass market vehicles. See “ The introduction of hybrid and electric technology in our cars is costly and its long term success is uncertain ”.
Developing and applying new automotive technologies is costly, and may become even more costly in the future as available technology advances and competition in the industry increases. If our research and development efforts do not lead to improvements in car performance relative to the competition, or if we are required to spend more to achieve comparable results, sales of our cars or our profitability may suffer.
If our car designs do not appeal to clients, our brand and competitive position may suffer.
Design and styling are an integral component of our models and our brand. Our cars have historically been characterized by distinctive designs combining the aerodynamics of a sports car with powerful, elegant lines. We believe our clients purchase our cars for their appearance as well as their performance. However, we will need to renew over time the style of our cars to differentiate the new models we produce from older models, and to reflect the broader evolution of aesthetics in our markets. We devote great efforts to the design of our cars and most of our current models are designed by the Ferrari Design Centre, our in-house design team. If the design of our future models fails to meet the evolving tastes and preferences of our clients and prospective clients, or the appreciation of the wider public, our brand may suffer and our sales may be adversely affected.
The value of our brand depends in part on the automobile collector and enthusiast community.
An important factor in the connection of clients to the Ferrari brand is our strong relationship with the global community of automotive collectors and enthusiasts, particularly collectors and enthusiasts of Ferrari automobiles. This is influenced by our close ties to the automotive collectors’ community and our support of related events (such as car shows and driving events) at our headquarters in Maranello and through our dealers, the Ferrari museums and affiliations with regional Ferrari clubs. The support of this community also depends upon the perception of our cars as collectibles, which we also support through our Ferrari Classiche services, and the active resale market for our automobiles which encourages interest over the long term. The increase in the number of cars we produce relative to the number of automotive collectors and purchasers in the secondary market may adversely affect our cars’ value as collectible items and in the secondary market more broadly.
If there is a change in collector appetite or damage to the Ferrari brand, our ties to, and the support we receive from, this community may be diminished. Such a loss of enthusiasm for our cars from the automotive collectors’ community could harm the perception of the Ferrari brand and adversely impact our sales and profitability.
Our business is subject to changes in client preferences and trends in the automotive and luxury industries.
Our continued success depends in part on our ability to originate and define products and trends in the automotive and luxury industries, as well as to anticipate and respond promptly to changing consumer demands and automotive trends in the design, styling, technology, production, merchandising and pricing of our products. Our products must appeal to a client base whose preferences cannot be predicted with certainty and are subject to rapid change. Evaluating and responding to client preferences has become even more complex in recent years, due to our expansion in new geographical markets. The introduction of hybrid and electric technology and the associated changes in customer preferences that may follow are also a challenge we will face in future periods. See also “If we are unable to keep up with advances in high performance car technology, our brand and competitive position may suffer” and “ The introduction of hybrid and electric technology in our cars is costly and its long term success is uncertain ”. In addition, there can be no assurance that we will be able to produce, distribute and market new products efficiently or that any product category that we may expand or introduce will achieve sales levels sufficient to generate profits. We will encounter this risk, for example, as we introduce the Purosangue, a luxury high performance vehicle within the GT range that we are developing and will launch in the coming years. Furthermore this risk is particularly pronounced as we expand in accordance with our strategy into adjacent segments of the luxury industry, where we do not have a level of experience

5


and market presence comparable to the one we have in the automotive industry. Any of these risks could have a material adverse effect on our business, results of operations and financial condition.

Demand for luxury goods, including luxury performance cars, is volatile, which may adversely affect our operating results.
Volatility of demand for luxury goods, in particular luxury performance cars, may adversely affect our business, operating results and financial condition. The market in which we sell our cars is subject to volatility in demand. Demand for luxury automobiles depends to a large extent on general, economic, political and social conditions in a given market as well as the introduction of new vehicles and technologies. As a luxury performance car manufacturer and low volume producer, we compete with larger automobile manufacturers many of which have greater financial resources in order to withstand changes in the market and disruptions in demand. Demand for our cars may also be affected by factors directly impacting the cost of purchasing and operating automobiles, such as the availability and cost of financing, prices of raw materials and parts and components, fuel costs and governmental regulations, including tariffs, import regulation and other taxes, including taxes on luxury goods, resulting in limitations to the use of high performance sports cars or luxury goods more generally. Volatility in demand may lead to lower car unit sales, which may result in downward price pressure and adversely affect our business, operating results and financial condition. The impact of a luxury market downturn may be particularly pronounced for the most expensive among our car models, which generate a more than proportionate amount of our profits, therefore exacerbating the impact on our results. In addition, these effects may have a more pronounced impact on us given our low volume strategy and relatively smaller scale as compared to large global mass-market automobile manufacturers.
We face competition in the luxury performance car industry.
We face competition in all product categories and markets in which we operate. We compete with other international luxury performance car manufacturers which own and operate well-known brands of high-quality cars, some of which form part of larger automotive groups and may have greater financial resources and bargaining power with suppliers than we do, particularly in light of our policy to maintain low volumes in order to preserve and enhance the exclusivity of our cars. In addition, several other manufacturers have recently entered or are attempting to enter the upper end of the luxury performance car market, thereby increasing competition. We believe that we compete primarily on the basis of our brand image, the performance and design of our cars, our reputation for quality and the driving experience for our customers. If we are unable to compete successfully, our business, results of operations and financial condition could be adversely affected.
Our growth strategy exposes us to risks.
Our growth strategy includes a controlled expansion of our sales and operations, including the launching of new car models and expanding sales, as well as dealer operations and workshops, in targeted growth regions internationally. In particular, our growth strategy requires us to expand operations in regions that we have identified as having relatively high growth potential. We may encounter difficulties, including more significant competition in entering and establishing ourselves in these markets.
Our growth depends on the continued success of our existing cars, as well as the successful introduction of new cars. Our ability to create new cars and to sustain existing car models is affected by whether we can successfully anticipate and respond to consumer preferences and car trends. The failure to develop successful new cars or delays in their launch that could result in others bringing new products and leading-edge technologies to the market first, could compromise our competitive position and hinder the growth of our business. As part of our growth strategy, we plan to broaden the range of our models to capture additional customer demand for different types of vehicles and modes of utilization. At our Capital Markets Day in September 2018, we announced our plan to introduce 15 new models in the 2019-2022 period (which is unprecedented for Ferrari over a similar time period), including the Icona limited editions, a new concept that takes inspiration from our iconic cars of the past and interprets them in a modern way with innovative technology and materials. In the GT range, we are developing a luxury high performance vehicle, the Purosangue, and we are planning a new line of cars powered by V6 engines. In addition, we will gradually but rapidly expand the use of hybrid and electric technology in our road cars, consistent with customer preferences and broader industry trends. While we will seek to ensure that these changes remain fully consistent with the Ferrari car identity, we cannot be certain that they will prove profitable and commercially successful.
Our growth strategy may expose us to new business risks that we may not have the expertise, capability or the systems to manage. This strategy will also place significant demands on us by requiring us to continuously evolve and improve our operational, financial and internal controls. Continued expansion also increases the challenges involved in maintaining high levels of quality, management and client satisfaction, recruiting, training and retaining sufficient skilled management, technical and marketing personnel. If we are unable to manage these risks or meet these demands, our growth prospects and our business, results of operations and financial condition could be adversely affected.

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We continuously improve our international network footprint and skill set. We also plan to open additional retail stores in international markets. We do not yet have significant experience directly operating in many of these markets, and in many of them we face established competitors. Many of these countries have different operational characteristics, including but not limited to employment and labor, transportation, logistics, real estate, environmental regulations and local reporting or legal requirements.
Consumer demand and behavior, as well as tastes and purchasing trends may differ in these markets, and as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Furthermore, such markets will have upfront short-term investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and therefore may be dilutive to us in the short-term. In many of these countries, there is significant competition to attract and retain experienced and talented employees.
Consequently, if our international expansion plans are unsuccessful, our business, results of operations and financial condition could be materially adversely affected.
Our low volume strategy may limit potential profits, and if volumes increase our brand exclusivity may be eroded.
A key to the appeal of the Ferrari brand and our marketing strategy is the aura of exclusivity and the sense of luxury which our brand conveys. A central facet to this exclusivity is the limited number of models and cars we produce and our strategy of maintaining our car waiting lists to reach the optimal combination of exclusivity and client service. Our low volume strategy is also an important factor in the prices that our clients are willing to pay for our cars. This focus on maintaining exclusivity limits our potential sales growth and profitability.
On the other hand, our current growth strategy contemplates a measured but significant increase in car sales above current levels as we target a larger customer base and modes of use, we increase our focus on GT cars, and our product portfolio evolves with a broader product range. We sold 10,131 cars in 2019, compared to 7,255 cars in 2014, and sales are expected to continue to increase gradually.
In pursuit of our strategy, we may be unable to maintain the exclusivity of the Ferrari brand. If we are unable to balance brand exclusivity with increased production, we may erode the desirability and ultimately the consumer demand for our cars. As a result, if we are unable to increase car production meaningfully or introduce new car models without eroding the image of exclusivity in our brand we may be unable to significantly increase our revenues.
The small number of car models we produce and sell may result in greater volatility in our financial results.
We depend on the sales of a small number of car models to generate our revenues. Our current product range consists of nine range models (including five sports cars and four GT cars) and two special series cars, as well as our limited edition Icona cars. While we anticipate significantly expanding our car offerings as part of our growth strategy, through our previously announced plan to introduce 15 new products in the 2019-2022 period, a limited number of models will continue to account for a large portion of our revenues at any given time in the foreseeable future, compared to other automakers. Therefore, a single unsuccessful new model would harm us more than it would other automakers. There can be no assurance that our cars will continue to be successful in the market, or that we will be able to launch new models on a timely basis compared to our competitors. It generally takes several years from the beginning of the development phase to the start of production for a new model and the car development process is capital intensive. As a result, we would likely be unable to replace quickly the revenue lost from one of our main car models if it does not achieve market acceptance. Furthermore, our revenues and profits may also be affected by our “special series” and limited edition cars (including the Icona limited editions) that we launch from time to time and which are typically priced higher than our range models. There can be no assurance that we will be successful in developing, producing and marketing additional new cars that will sustain sales growth in the future.
Global economic conditions and macro events may adversely affect us.
Our sales volumes and revenues may be affected by overall general economic conditions. Deteriorating general economic conditions may affect disposable incomes and reduce consumer wealth impacting client demand, particularly for luxury goods, which may negatively impact our profitability and put downward pressure on our prices and volumes. Furthermore, during recessionary periods, social acceptability of luxury purchases may decrease and higher taxes may be more likely to be imposed on certain luxury goods including our cars, which may affect our sales. Adverse economic conditions may also affect

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the financial health and performance of our dealers in a manner that will affect sales of our cars or their ability to meet their commitments to us.
Many factors affect the level of consumer spending in the luxury performance car industry, including the state of the economy as a whole, stock market performance, interest and exchange rates, inflation, political uncertainty, the availability of consumer credit, tax rates, unemployment levels and other matters that influence consumer confidence. In general, although our sales have historically been comparatively resilient in periods of economic turmoil, sales of luxury goods tend to decline during recessionary periods when the level of disposable income tends to be lower or when consumer confidence is low.
We are also susceptible to risks relating to epidemics and pandemics of diseases. For example, the recent outbreak of coronavirus COVID-19 (“Coronavirus”), a virus causing potentially deadly respiratory tract infections originating in China, may negatively affect economic conditions regionally as well as globally, disrupt supply chains and otherwise impact operations. Governments in affected countries are imposing travel bans, quarantines and other emergency public safety measures. Those measures, though temporary in nature, may continue and increase depending on developments in the virus’ outbreak. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our end markets, supply chain or operations; however, the effect on our results may be material and adverse.
We distribute our products internationally and we may be affected by downturns in general economic conditions or uncertainties regarding future economic prospects that may impact the countries in which we sell a significant portion of our products. In particular, the majority of our current sales are in the EU and in the United States; if we are unable to expand in emerging markets, a downturn in mature economies such as the EU and the United States may negatively affect our financial performance. The EU economies in particular suffered a prolonged period of slow growth since the 2008 financial crisis. In addition, uncertainties regarding future trade arrangements and industrial policies in various countries or regions, such as in the United Kingdom following the referendum in 2016 to leave the European Union (see further “We may be adversely affected by the UK determination to leave the European Union (Brexit)” ) create additional macroeconomic risk. In the United States, any policy to discourage import into the United States of vehicles produced elsewhere could adversely affect our operations. Any new policies may have an adverse effect on our business, financial condition and results of operations. Although China only represents approximately 9 percent of our net revenues and a limited proportion of our growth in the short term, slowing economic conditions in China may adversely affect our revenues in that region. A significant decline in the EU, the global economy or in the specific economies of our markets, or in consumers’ confidence, could have a material adverse effect on our business. See also “Developments in China and other growth and emerging markets may adversely affect our business” .
Developments in China and other growth and emerging markets may adversely affect our business.
We operate in a number of growth and emerging markets, both directly and through our dealers. We believe we have potential for further success in new geographies, in particular in China, but also more generally in Asia, recognizing the increasing personal wealth in these markets. While demand in these markets has increased in recent years due to sustained economic growth and growth in personal income and wealth, we are unable to foresee the extent to which economic growth in these emerging markets will be sustained. For example, rising geopolitical tensions and potential slowdowns in the rate of growth there and in other emerging markets could limit the opportunity for us to increase unit sales and revenues in those regions in the near term. See “ Global economic conditions and macro events may adversely affect us ” for a discussion of the recent Coronavirus outbreak, which, for example, may negatively affect sales of our cars in Hong Kong and China in the coming periods.
Our exposure to growth and emerging countries is likely to increase, as we pursue expanded sales in such countries. Economic and political developments in emerging markets, including economic crises or political instability, have had and could have in the future material adverse effects on our results of operations and financial condition. Further, in certain markets in which we or our dealers operate, required government approvals may limit our ability to act quickly in making decisions on our operations in those markets. Other government actions may also impact the market for luxury goods in these markets, such as tax changes or the active discouragement of luxury purchases.
Maintaining and strengthening our position in these growth and emerging markets is a key component of our global growth strategy. However, initiatives from several global luxury automotive manufacturers have increased competitive pressures for luxury cars in several emerging markets. As these markets continue to grow, we anticipate that additional competitors, both international and domestic, will seek to enter these markets and that existing market participants will try to aggressively protect or increase their market share. Increased competition may result in pricing pressures, reduced margins and our inability to gain or hold market share, which could have a material adverse effect on our results of operations and financial condition. See also “ Global economic conditions and macro events may adversely affect us ”.

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We may be adversely affected by the UK determination to leave the European Union (Brexit).
In a June 23, 2016 referendum, the United Kingdom voted to terminate the UK’s membership in the European Union (“ Brexit ”). The UK ceased to be a member of the European Union on January 31, 2020, opening the transition period that is currently set to last until December 31, 2020, during which the future terms of the UK’s relationship with the European Union, including the terms of trade between the UK and the member states in the EU, will be negotiated. Any effect of Brexit is expected to depend on the agreements, if any, that may be negotiated between the UK and the EU with respect to reciprocal market access and custom arrangements, during the transitional period and more permanently. Failure to reach appropriate agreements could adversely affect European or worldwide economic or market conditions. It is possible that there will be greater restrictions on imports and exports between the UK and European Union countries and increased regulatory complexities which may prove challenging and costly. The UK’s withdrawal from the EU could also negatively impact economic conditions in Europe more generally, which in turn could adversely impact global economic conditions. For instance, the negotiating process surrounding the terms of the departure of the UK from the EU may continue to contribute to significant volatility in exchange rates, wider risks to supply chains across the European Union and ultimately lead to changes in market access or trading terms, including to customs duties, tariffs and/or industry-specific requirements and regulations and generally increased legal and regulatory complexity and costs. In 2019, approximately 10 percent of our cars and spare parts net revenues were generated in the UK; therefore, any material adverse effect of Brexit on global or regional economic or market conditions could adversely affect our business, results of operations and financial condition as customers may reduce or delay spending decisions on our products.
Our success depends largely on the ability of our current management team to operate and manage effectively.
Our success depends on the ability of our senior executives and other members of management to effectively manage our business as a whole and individual areas of the business. Our employees, particularly in our production facilities in and around Maranello, Italy include many highly skilled engineers, technicians and artisans. If we were to lose the services of any of these senior executives or key employees, this could have a material adverse effect on our business, operating results and financial condition. We have developed management succession plans that we believe are appropriate in the circumstances, although it is difficult to predict with any certainty that we will replace these individuals with persons of equivalent experience and capabilities. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel, our business, results of operations and financial condition may suffer.
We rely on our dealer network to provide sales and services.
We do not own our Ferrari dealers and virtually all of our sales are made through our network of dealerships located throughout the world. If our dealers are unable to provide sales or service quality that our clients expect or do not otherwise adequately project the Ferrari image and its aura of luxury and exclusivity, the Ferrari brand may be negatively affected. We depend on the quality of our dealership network and our business, operating results and financial condition could be adversely affected if our dealers suffer financial difficulties or otherwise are unable to perform to our expectations. Furthermore, we may experience disagreements or disputes in the course of our relationship with our dealers or upon termination which may lead to financial costs, disruptions and reputational harm.
Our growth strategy also depends on our ability to attract a sufficient number of quality new dealers to sell our products in new areas. We may face competition from other luxury performance car manufacturers in attracting quality new dealers, based on, among other things, dealer margin, incentives and the performance of other dealers in the region. If we are unable to attract a sufficient number of new Ferrari dealers in targeted growth areas, our prospects could be materially adversely affected.
We depend on our suppliers, many of which are single source suppliers; and if these suppliers fail to deliver necessary raw materials, systems, components and parts of appropriate quality in a timely manner, our operations may be disrupted.
Our business depends on a significant number of suppliers, which provide the raw materials, components, parts and systems we require to manufacture cars and parts and to operate our business. We use a variety of raw materials in our business, including aluminum, and precious metals such as palladium and rhodium. We source materials from a limited number of suppliers. We cannot guarantee that we will be able to maintain access to these raw materials, and in some cases this access may be affected by factors outside of our control and the control of our suppliers. In addition, prices for these raw materials fluctuate and while we seek to manage this exposure, we may not be successful in mitigating these risks.
As with raw materials, we are also at risk of supply disruption and shortages in parts and components we purchase for use in our cars. We source a variety of key components from third parties, including transmissions, brakes, driving-safety systems, navigation systems, mechanical, electrical and electronic parts, plastic components as well as castings and tires, which

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makes us dependent upon the suppliers of such components. In the future, we will also require a greater number of components for hybrid and electric engines as we introduce hybrid and electric technology in our cars, and we expect producers of these components will be called upon to increase the levels of supply as the shift to hybrid or electric technology gathers pace in the industry. While we obtain components from multiple sources whenever possible, similar to other small volume car manufacturers, most of the key components we use in our cars are purchased by us from single source suppliers. We generally do not qualify alternative sources for most of the single-sourced components we use in our cars and we do not maintain long-term agreements with a number of our suppliers. Furthermore, we have limited ability to monitor the financial stability of our suppliers.
While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single-sourced components, we may be unable to do so in the short term, or at all, at prices or costs that we believe are reasonable. Qualifying alternate suppliers or developing our own replacements for certain highly customized components of our cars may be time consuming, costly and may force us to make costly modifications to the designs of our cars. For example, defective airbags manufactured by Takata Corporation (“Takata”), our former principal supplier of airbags, have led to widespread recalls by several automotive manufacturers starting in 2015, including us (see further “ Car recalls may be costly and may harm our reputation ”; see also “Item 4.B. Business Overview—Regulatory Matters—Vehicle safety ”). Following the acquisition of Takata by Key Safety Systems (“KSS”) in April 2018, Joyson Safety Systems, which is the combined company of Takata and KSS following the acquisition, is our principal supplier of the airbags installed in our cars. Failure by Joyson Safety Systems to continue the supply of airbags may cause significant disruption to our operations.
In the past, we have replaced certain suppliers because they failed to provide components that met our quality control standards. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in car deliveries to our clients, which could adversely affect our relationships with our clients and also materially and adversely affect our operating results and financial condition. Supply of raw materials, parts and components may also be disrupted or interrupted by natural disasters, as was the case in 2012 following the earthquake in the Emilia Romagna region of Italy. If any further major disasters occur, such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, pandemics or other events, our supply chain may be disrupted, which may stop or delay production and shipment of our cars. See “ Global economic conditions and macro events may adversely affect us ” for a discussion of the recent Coronavirus outbreak, which may affect our supply chain directly or indirectly dependent on certain Chinese supplies. As a consequence, should the current disruption in Chinese industrial activity and logistics persist or deteriorate, this may disrupt and potentially halt our production temporarily unless alternative supplies are secured.
Changes in our supply chain have in the past resulted and may in the future result in increased costs and delays in car production. We have also experienced cost increases from certain suppliers in order to meet our quality targets and development timelines and because of design changes that we have made, and we may experience similar cost increases in the future. We are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them less expensive to produce. If we are unsuccessful in our efforts to control and reduce supplier costs while maintaining a stable source of high quality supplies, our operating results will suffer. Additionally, cost reduction efforts may disrupt our normal production processes, thereby harming the quality or volume of our production.
Furthermore, if our suppliers fail to provide components in a timely manner or at the level of quality necessary to manufacture our cars, our clients may face longer waiting periods which could result in negative publicity, harm our reputation and relationship with clients and have a material adverse effect on our business, operating results and financial condition.
We depend on our manufacturing facilities in Maranello and Modena.
We assemble all of the cars that we sell and manufacture, and all of the engines we use in our cars and sell to Maserati, at our production facility in Maranello, Italy, where we also have our corporate headquarters. We manufacture all of our car chassis in a nearby facility in Modena, Italy. Our Maranello or Modena plants could become unavailable either permanently or temporarily for a number of reasons, including contamination, power shortage or labor unrest. Alternatively, changes in law and regulation, including export, tax and employment laws and regulations, or economic conditions, including wage inflation, could make it uneconomic for us to continue manufacturing our cars in Italy. In the event that we were unable to continue production at either of these facilities or it became uneconomic for us to continue to do so, we would need to seek alternative manufacturing arrangements which would take time and reduce our ability to produce sufficient cars to meet demand. Moving manufacturing to other locations may also affect the perception of our brand and car quality among our clients. Such a transfer would materially reduce our revenues and could require significant investment, which as a result could have a material adverse effect on our business, results of operations and financial condition.

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Maranello and Modena are located in the Emilia-Romagna region of Italy which has the potential for seismic activity. For instance, in 2012 a major earthquake struck the region, causing production at our facilities to be temporarily suspended for a day. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, pandemics or other events occur, our headquarters and production facilities may be seriously damaged, or we may stop or delay production and shipment of our cars. See “ Global economic conditions and macro events may adversely affect us ” for a discussion of the recent Coronavirus outbreak. As such damage from disasters or unpredictable events could have a material adverse impact on our business, results from operations and financial condition.
We rely on our licensing and franchising partners to preserve the value of our licenses and the failure to maintain such partners could harm our business.
We currently have multi-year agreements with licensing partners for various Ferrari-branded products in the sports, lifestyle and luxury retail segments. We also have multi-year agreements with franchising partners for our Ferrari stores and theme park. In the future, we may enter into additional licensing or franchising arrangements. Many of the risks associated with our own products also apply to our licensed products and franchised stores. In addition, there are unique problems that our licensing or franchising partners may experience, including risks associated with each licensing partner’s ability to obtain capital, manage its labor relations, maintain relationships with its suppliers, manage its credit and bankruptcy risks, and maintain client relationships. While we maintain significant control over the products produced for us by our licensing partners and the franchisees running our Ferrari stores and theme parks, any of the foregoing risks, or the inability of any of our licensing or franchising partners to execute on the expected design and quality of the licensed products, Ferrari stores and theme park, or otherwise exercise operational and financial control over its business, may result in loss of revenue and competitive harm to our operations in the product categories where we have entered into such licensing or franchising arrangements. While we select our licensing and franchising partners with care, any negative publicity surrounding such partners could have a negative effect on licensed products, the Ferrari stores and theme parks or the Ferrari brand. Further, while we believe that we could replace our existing licensing or franchising partners if required, our inability to do so for any period of time could materially adversely affect our revenues and harm our business.
In connection with our new brand diversification strategy, we expect to streamline our existing arrangements with licensing partners and decrease the volume of licensing business. This may adversely affect our results from brand activities, particularly in the short to medium term while our broader brand diversification strategy is carried out.
We depend on the strength of our trademarks and other intellectual property rights.
We believe that our trademarks and other intellectual property rights are fundamental to our success and market position. Therefore, our business depends on our ability to protect and promote our trademarks and other intellectual property rights. Accordingly, we devote substantial efforts to the establishment and protection of our trademarks and other intellectual property rights such as registered designs and patents on a worldwide basis. We believe that our trademarks and other intellectual property rights are adequately supported by applications for registrations, existing registrations and other legal protections in our principal markets. However, we cannot exclude the possibility that our intellectual property rights may be challenged by others, or that we may be unable to register our trademarks or otherwise adequately protect them in some jurisdictions. If a third party were to register our trademarks, or similar trademarks, in a country where we have not successfully registered such trademarks, it could create a barrier to our commencing trade under those marks in that country.
We may fail to adequately protect our intellectual and industrial property rights against infringement or misappropriation by third parties.
Our success and competitive positioning depend on, among other factors, our registered intellectual property rights, as well as other industrial or intellectual property rights, including confidential know-how, trade secrets, database rights and copyrights. To protect our intellectual property, we rely on intellectual property laws, agreements for the protection of trade secrets, confidentiality and non-disclosure agreements, and other contractual means. Such measures, however, may be inadequate and our intellectual property rights may be infringed or challenged by third parties, and our confidential know-how or trade secrets could be misappropriated or disclosed to the public without our consent. Consultants, vendors and current and former employees, for example, could violate their confidentiality obligations and restrictions on the use of Ferrari’s intellectual property. Ferrari may not be able to prevent such infringements, misappropriations or disclosures, with potential adverse effects on our brand, reputation and business. In particular, our components may be subject to product piracy, where our components are counterfeited, which may result in reputational risk for Ferrari. The risks described above arise particularly in our Brand activities (see “Item 4.B. Business Overview—Brand activities ”).

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If we fail to adequately protect our intellectual property rights, this may adversely affect our results of operations and financial condition, as other manufacturers may be able to manufacture similar products at lower cost, with adverse effects on our competitive position. In addition, counterfeited products, or products illegally branded as “Ferrari”, may damage our brand. In addition, we may incur high costs in reacting to infringements or misappropriations of our intellectual property rights.
Third parties may claim that we infringe their intellectual property rights.
We believe that we hold all the rights required for our business operations (including intellectual property rights and third-party licenses). However, we are exposed to potential claims from third parties alleging that we infringe their intellectual property rights, since many competitors and suppliers also submit patent applications for their inventions and secure patent protection or other intellectual property rights. If we are unsuccessful in defending against any such claim, we may be required to pay damages or comply with injunctions which may disrupt our operations. We may also as a result be forced to enter into royalty or licensing agreements on unfavorable terms or to redesign products to comply with third parties’ intellectual property rights.
Our revenues from Formula 1 activities may decline and our related expenses may grow.
Revenues from our Formula 1 activities depend principally on the income from our sponsorship agreements and on our share of Formula 1 revenues from broadcasting and other sources. See “Item 4.B. Business Overview—Formula 1 Activities .” If we are unable to renew our existing sponsorship agreements or if we enter into new or renewed sponsorship agreements with less favorable terms, our revenues would decline. In addition, our share of profits related to Formula 1 activities may decline if either our team’s performance worsens compared to other competing teams, or if the overall Formula 1 business suffers, including potentially as a result of increasing popularity of the FIA Formula E championship. Furthermore, in order to compete effectively on track we have been investing significant resources in research and development and to competitively compensate the best available drivers and other racing team members. These expenses also vary based on changes in Formula 1 regulations that require modification to our racing engines and cars. These expenses are expected to continue, and may grow further, including as a result of any changes in Formula 1 regulations, which would negatively affect our results of operations.
On October 31, 2019, the World Council (Formula 1’s legislative body) approved new technical, sporting and financial rules, following the extensive talks held in the past two years among the owners of the Formula 1 business and all teams with regards to the arrangements relating to the participation of Ferrari and the other teams competing in the championship in the period following the 2020 expiration of the current arrangements between racing teams and the operator of Formula 1. The new rules, which will come into effect in 2021, provide for, among other things, a new car design, a cap of $175 million per year for all costs and expenses covering on-track performance (excluding, among others, the activities to enable the supply of power units, marketing costs, drivers’ salaries and the top three personnel at each team), limits on car upgrades over race weekends, restrictions on the number of times that certain components can be replaced during a race and the standardization of certain parts. While the new rules approved by the World Council may be subject to further changes during the course of 2020, the final set of rules that will become applicable as of 2021 will require significant changes to our racing cars, processes and operations. These changes may result in adverse effects on our revenues and results of operations. In particular, the new cap on expenses will affect the amount of resources that we are allowed to allocate to Formula 1 activities, with potential adverse effects on our team’s performance if we are not able to optimize such resources.
Engine production revenues are dependent on Maserati’s ability to sell its cars.

We produce V8 and V6 engines for Maserati. We have a multi-year arrangement with Maserati to provide V6 engines through 2020, which may be followed by further production runs in future periods. While Maserati is required to compensate us for certain production costs, we may incur penalties from our suppliers. In the event that the sales of Maserati cars decline, or do not increase at the expected rate, such an event would adversely affect our revenues from the sale of engines.
We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions and establishing ourselves in new markets, all of which could harm our business.
We currently have international operations and subsidiaries in various countries and jurisdictions in Europe, North America and Asia that are subject to the legal, political, regulatory, tax and social requirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we will continue to expand our sales, maintenance, and repair services internationally. However, such expansion requires us to make significant expenditures, including the establishment of local operating entities, hiring of local employees and establishing facilities in advance of generating any revenue. We are subject to

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a number of risks associated with international business activities that may increase our costs, impact our ability to sell our cars and require significant management attention. These risks include:
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conforming our cars to various international regulatory and safety requirements where our cars are sold, or homologation;
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difficulty in establishing, staffing and managing foreign operations;
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difficulties attracting clients in new jurisdictions;
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foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in Italy;
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fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;
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our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as do the United States, Japan and European countries, which increases the risk of unauthorized, and uncompensated, use of our technology;
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European Union and foreign government trade restrictions, customs regulations, tariffs and price or exchange controls;
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foreign labor laws, regulations and restrictions;
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preferences of foreign nations for domestically produced cars;
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changes in diplomatic and trade relationships;
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political instability, natural disasters, war or events of terrorism; and
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the strength of international economies.
If we fail to successfully address these risks, many of which we cannot control, our business, operating results and financial condition could be materially harmed.
New laws, regulations, or policies of governmental organizations regarding increased fuel economy requirements, reduced greenhouse gas or pollutant emissions, or vehicle safety, or changes in existing laws, may have a significant effect on our costs of operation and/or how we do business.
We are subject throughout the world to comprehensive and constantly evolving laws, regulations and policies. We expect the extent of the legal and regulatory requirements affecting our business and our costs of compliance to continue to increase significantly in the future. In Europe and the United States, for example, significant governmental regulation is driven by environmental, fuel economy, vehicle safety and noise emission concerns. Evolving regulatory requirements could significantly affect our product development plans and may limit the number and types of cars we sell and where we sell them, which may affect our revenue. Governmental regulations may increase the costs we incur to design, develop and produce our cars and may affect our product portfolio. Regulation may also result in a change in the character or performance characteristics of our cars which may render them less appealing to our clients. We anticipate that the number and extent of these regulations, and their effect on our cost structure and product line-up, will increase significantly in the future.
Current European legislation limits fleet average greenhouse gas emissions for new passenger cars. Due to our small volume manufacturer (“SVM”) status we benefit from a derogation from the existing emissions requirement and we are instead required to meet, by 2021, alternative targets for our fleet of EU-registered vehicles. Despite global shipments exceeding 10,000 vehicles in 2019, Ferrari still qualifies as an SVM under EU regulations, since its total number of registered vehicles in the EU per year is less than 10,000 vehicles.
In the United States, the U.S. Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) have set the federal standards for passenger cars and light trucks to meet certain combined average greenhouse gas (“GHG”) and fuel economy (“CAFE”) levels and more stringent standards have been prescribed for model years 2017 through 2025. Since Ferrari is considered to be an SVM under EPA GHG regulations (as it produces less than 5,000 vehicles

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per model year for the US market), we expect to benefit from a derogation from currently applicable standards. We have also petitioned the EPA for alternative standards for the model years 2017-2021 and 2022-2025, which are aligned to our technical and economic capabilities. In September 2016 we petitioned NHTSA for recognition as an independent manufacturer of less than 10,000 vehicles produced globally and we proposed alternative CAFE standards for model years 2017, 2018 and 2019. Then, in December, 2017, we amended the petition by proposing alternative CAFE standards for model years 2016, 2017 and 2018 instead, covering also the 2016 model year. NHTSA have not yet responded to our petition. If our petitions are rejected, we will not be able to benefit from the more favorable CAFE standards levels which we have petitioned for and this may require us to purchase additional CAFE credits in order to comply with applicable CAFE standards. Starting from 2019, we are no longer considered to be an SVM by NHTSA, because our global production exceeded 10,000 vehicles, and therefore we may be required to purchase further CAFE credits.
In the United States, considerable uncertainty is associated with emissions regulations under the current administration. New regulations are in the process of being developed, and many existing and potential regulatory initiatives are subject to review by federal or state agencies or the courts. In August 2018 the NHTSA and the EPA issued a common proposal, the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for model years 2021-2026 Passenger Cars and Light Trucks” (SAFE Vehicles Rule). The SAFE Vehicles Rule, if finalized, would amend certain existing Corporate Average Fuel Economy (CAFE) and tailpipe carbon dioxide emissions standards for passenger cars and light trucks and establish new standards, all covering model years 2021 through 2026. The authorities’ stated preferred alternative is to retain the model year 2020 standards (specifically, the footprint target curves for passenger cars and light trucks) for both programs through model year 2026, but comment has been sought on a range of alternatives. The SAFE Vehicles Rule has not been adopted in final form as of the date of this filing.
In the state of California (which has been granted special authority under the Clean Air Act to set its own vehicle emission standards), the California Air Resources Board (“CARB”) has enacted regulations under which manufacturers of vehicles for model years 2012 through 2025 which are in compliance with the EPA greenhouse gas emissions regulations are also deemed to be in compliance with California’s greenhouse gas emission regulations (the so-called “deemed to comply” option). The SAFE Vehicles Rule mentioned above proposes to withdraw the waiver granted to California under the Clean Air Act to establish more stringent standards for vehicle emissions that are applicable to model years 2021 through 2025. In response to the proposed California waiver withdrawal, on December 12, 2018 the CARB amended its existing regulations to clarify that the “deemed-to-comply” provision shall not be available for model years 2021-2025 if the EPA standards for those years are altered via an amendment of federal regulations. On September 19, 2019, NHTSA and EPA established the “One National Program” for fuel economy regulation, taking the first step towards finalizing the agencies’ August 2018 proposal by announcing the EPA’s decision to withdraw California’s waiver of preemption under the Clean Air Act, and by affirming the NHTSA’s authority to set nationally applicable regulatory standards under the preemption provisions of the Energy Policy and Conservation Act (EPCA). The two agencies indicated that they anticipate issuing a final rule on standards in the near future. Ferrari currently avails itself of the “deemed-to-comply” provision to comply with CARB greenhouse gas emissions regulations. Therefore, depending on future developments, it may be necessary to also petition the CARB for SVM alternative standards and to increase the number of tests to be performed in order to follow the CARB specific procedures.
In addition, we are subject to legislation relating to the emission of other air pollutants such as, among others, the EU “Euro 6” standards and Real Driving Emissions (RDE) standards, the “Tier 3” Motor Vehicle Emission and Fuel Standards issued by the EPA, and the Zero Emission Vehicle regulation in California, which are subject to similar derogations for SVMs, as well as vehicle safety legislation. In 2016, NHTSA published guidelines for driver distraction, for which rulemaking activities have not progressed since early 2017. The costs of compliance associated with these and similar rulemaking may be substantial.
Other governments around the world, such as those in Canada, South Korea, China and certain Middle Eastern countries are also creating new policies to address these issues which could be even more stringent than the U.S. or European requirements. As in the United States and Europe, these government policies if applied to us could significantly affect our product development plans. In China, for example, Stage IV fuel consumption regulation targets a national average fuel consumption of 5.0L/100km by 2020, and the Stage V regulation, issued on December 31, 2019, targets a national average fuel consumption of 4.0 l/100km by 2025.
In response to severe air quality issues in Beijing and other major Chinese cities, in 2016 the Chinese government published a more stringent emissions program (National 6), providing two different levels of stringency effective starting from 2020. Moreover several autonomous Chinese regions and municipalities are implementing the requirements of the National 6 program even ahead of the mandated deadlines.
We have lost our status as an SVM for NHSTA in 2019, because our global production exceeded 10,000 vehicles, but we have not lost our SVM status for EU regulations or for EPA GHG regulations in the United States. We could lose our status

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as an SVM in the EU, the United States and other countries if we do not continue to meet all of the necessary eligibility criteria under applicable regulations as they evolve. In order to meet these criteria we may need to modify our growth plans or other operations. Furthermore, even if we continue to benefit from derogations as an SVM, we will be subject to alternative standards that the regulators deem appropriate for our technical and economic capabilities and such alternative standards may be significantly more stringent than those currently applicable to us.
Under these existing regulations, as well as new or stricter rules or policies, we could be subject to sizable civil penalties or have to restrict or modify product offerings drastically to remain in compliance. We may have to incur substantial capital expenditures and research and development expenditures to upgrade products and manufacturing facilities, which would have an impact on our cost of production and results of operation. For a description of the regulation referred to in the paragraphs above please see “ Item 4.B. Business Overview—Regulatory Matters” .
In the future, the advent of self-driving technology may result in regulatory changes that we cannot predict but may include limitations or bans on human driving in specific areas. Similarly, driving bans on combustion engine vehicles could be imposed, particularly in metropolitan areas, as a result of progress in electric and hybrid technology. Any such future developments may adversely affect the demand for our cars and our business.
In September 2017 the Chinese government issued the Administrative Measures on CAFC (Corporate Average Fuel Consumption) and NEV (New Energy Vehicle) Credits. This regulation establishes mandatory CAFC requirements, while providing additional flexibilities for SVMs (defined as manufacturers with less than 2,000 units imported in China per year) that achieve a certain minimum CAFC yearly improvement rate. An update of the Administrative Measures on CAFC and NEV credits is awaited, following the adoption of the Stage V fuel consumption regulation. Because our CAFC is expected to exceed the regulatory ceiling, we will be required to purchase NEV credits. There is no assurance that an adequate market for NEV credits will develop in China and if we are not able to secure sufficient NEV credits this may adversely affect our business in China.
To comply with current and future environmental rules related to both fuel economy and pollutant emissions in all markets in which we sell our cars, we may have to incur substantial capital expenditure and research and development expenditure to upgrade products and manufacturing facilities, which would have an impact on our cost of production and results of operation.
The introduction of hybrid and electric technology in our cars is costly and its long term success is uncertain.
We are gradually but rapidly introducing hybrid and electric technology in our cars. In accordance with our strategy, we believe hybrid and electric technology will be key to providing continuing performance upgrades to our sports car customers, and will also help us capture the preferences of the urban, affluent GT cars purchasers whom we are increasingly targeting, while helping us meet increasingly stricter emissions requirements.

In 2019, we launched the SF90 Stradale (shipments of which are expected to begin in 2020), the first series production Ferrari to feature Plug-in Hybrid Electric Vehicle (PHEV) architecture, integrating the internal combustion engine with three electric motors. Some of our past models, such as LaFerrari and LaFerrari Aperta, have also included hybrid technology. The integration of hybrid and electric technology more broadly into our car portfolio over time may present challenges and costs. We expect to increase R&D spending in the medium term particularly on hybrid and electric technology-related projects. Although we expect to price our hybrid and electric cars appropriately to recoup the investments and expenditures we are making, we cannot be certain that these expenditures will be fully recovered. In addition, this transformation of our car technology creates risks and uncertainties such as the impact on driver experience, and the impact on the cars’ residual value over time, both of which may be met with an unfavorable market reaction. Other manufacturers of luxury sports cars may be more successful in implementing hybrid and electric technology. In the long term, although we believe that combustion engines will continue to be fundamental to the Ferrari driver experience, hybrid and pure electric cars may become the prevalent technology for performance sports cars thereby displacing combustion engine models. See also “ If we are unable to keep up with advances in high performance car technology, our brand and competitive position may suffer .”
Because hybrid and electric technology is a core component of our strategy, and we expect that a significant portion of our shipments in the medium term will consist of vehicles that feature hybrid and electric technology, if the introduction of hybrid and electric cars proves too costly or is unsuccessful in the market, our business and results of operations could be materially adversely affected.

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If our cars do not perform as expected our ability to develop, market and sell our cars could be harmed.
Our cars may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. There can be no assurance that we will be able to detect and fix any defects in the cars prior to their sale to consumers. Our cars may not perform in line with our clients’ evolving expectations or in a manner that equals or exceeds the performance characteristics of other cars currently available. For example, our newer cars may not have the durability or longevity of current cars, and may not be as easy to repair as other cars currently on the market. Any product defects or any other failure of our performance cars to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, operating results and financial condition.
Car recalls may be costly and may harm our reputation.

We have in the past and we may from time to time in the future be required to recall our products to address performance, compliance or safety-related issues. We may incur costs for these recalls, including replacement parts and labor to remove and replace the defective parts. For example, in the course of 2015 and 2016, we issued a series of recalls relating to defective air bags manufactured by Takata and installed on certain of our models. Also in light of uncertainties in our ability to recover the recall costs from Takata (which filed for bankruptcy in June 2017), we recorded a provision regarding this matter in the second quarter of 2016 for an amount of €37 million. This provision amounted to €16 million as of December 31, 2019 . For a description of these and other recent recalls, see “Item 4.B. Business Overview—Regulatory Matters—Vehicle safety ”. In addition, regulatory oversight of recalls, particularly in the vehicle safety, has increased recently. Any product recalls can harm our reputation with clients, particularly if consumers call into question the safety, reliability or performance of our cars. Any such recalls could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product liability claims and other expenses, and could have a material adverse impact on our business, operating results and financial condition.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may become subject to product liability claims, which could harm our business, operating results and financial condition. The automobile industry experiences significant product liability claims and we have inherent risk of exposure to claims in the event our cars do not perform as expected or malfunction resulting in personal injury or death. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our cars and business, adversely affecting our reputation and inhibiting or preventing commercialization of future cars which could have a material adverse effect on our brand, business, operating results and financial condition. While we seek to insure against product liability risks, insurance may be insufficient to protect against any monetary claims we may face and will not mitigate any reputational harm. Any lawsuit seeking significant monetary damages may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we face liability for our products and are forced to make a claim under such a policy.
We are exposed to risks in connection with product warranties as well as the provision of services.
A number of our contractual and legal requirements oblige us to provide extensive warranties to our clients, dealers and national distributors. There is a risk that, relative to the guarantees and warranties granted, the calculated product prices and the provisions for our guarantee and warranty risks have been set or will in the future be set too low. There is also a risk that we will be required to extend the guarantee or warranty originally granted in certain markets for legal reasons, or provide services as a courtesy or for reasons of reputation where we are not legally obliged to do so, and for which we will generally not be able to recover from suppliers or insurers.
Our insurance coverage may not be adequate to protect us against all potential losses to which we may be subject, which could have a material adverse effect on our business.
We maintain insurance coverage that we believe is adequate to cover normal risks associated with the operation of our business. However, there can be no assurance that any claim under our insurance policies will be honored fully or timely, our insurance coverage will be sufficient in any respect or our insurance premiums will not increase substantially. Accordingly, to the extent that we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, or have to pay higher insurance premiums, our financial condition may be affected.

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Improper conduct of employees, agents, or other representatives could adversely affect our reputation and our business, operating results, and financial condition.
Our compliance controls, policies, and procedures may not in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including employment, foreign corrupt practices, environmental, competition, and other laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties. In particular, our business activities may be subject to anti-corruption laws, regulations or rules of other countries in which we operate. If we fail to comply with any of these regulations, it could adversely impact our operating results and our financial condition. In addition, actual or alleged violations could damage our reputation and our ability to conduct business. Furthermore, detecting, investigating, and resolving any actual or alleged violation is expensive and can consume significant time and attention of our executive management.
A disruption in our information technology could compromise confidential and sensitive information.
We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, human error, interruption to power supply, or a security breach that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to compete. Our ability to keep our business operating effectively depends on the functional and efficient operation by us and our third party service providers of our information, data processing and telecommunications systems, including our car design, manufacturing, inventory tracking and billing and payment systems. We rely on these systems to enable a number of business processes and help us make a variety of day-to-day business decisions as well as to track transactions, billings, payments and inventory. Such systems are susceptible to malfunctions and interruptions due to equipment damage, power outages, and a range of other hardware, software and network problems. Those systems are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency, with the consequence that such cyber incidents may remain undetected for long periods of time. For any of these reasons, we may experience system malfunctions or interruptions. Although our systems are diversified, including multiple server locations and a range of software applications for different regions and functions, and we periodically assess and implement actions to ameliorate risks to our systems, a significant or large scale malfunction or interruption of our systems could adversely affect our ability to manage and keep our operations running efficiently, and damage our reputation if we are unable to track transactions and deliver products to our dealers and clients. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, results of operations and financial condition. In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our business, our clients and our employees.
As our technology continues to evolve, we anticipate that we will collect and store even more data in the future, and that our systems will increasingly use remote communication features that are sensitive to both willful and unintentional security breaches. Much of our value is derived from our confidential business information, including car design, proprietary technology and trade secrets, and to the extent the confidentiality of such information is compromised, we may lose our competitive advantage and our car sales may suffer. We also collect, retain and use certain personal information, including data we gather from clients for product development and marketing purposes, and data we obtain from employees. Therefore we are subject to a variety of ever-changing data protection and privacy laws on a global basis, including the EU General Data Protection Regulation, which came into force on May 25, 2018. To an increasing extent, the functionality and controls of our cars depend on in-vehicle information technology. Furthermore, such technology is capable of storing an increasing amount of personal information belonging to our customers. Any unauthorized access to in-vehicle IT systems may compromise the car security or the privacy of our customers’ information and expose us to claims as well as reputational damage. Ultimately, any significant compromise in the integrity of our data security could have a material adverse effect on our business.
Our indebtedness could adversely affect our operations and we may face difficulties in servicing or refinancing our debt.
As of December 31, 2019 , our gross consolidated debt was approximately € 2,090 million (which includes our financial services). See “Item 5.B . Liquidity and Capital Resources ”. Our current and long-term debt requires us to dedicate a portion of our cash flow to service interest and principal payments and, if interest rates rise, this amount may increase. In addition, our existing debt may limit our ability to raise further capital or incur additional indebtedness to execute our growth strategy or otherwise may place us at a competitive disadvantage relative to competitors that have less debt. To the extent we become more leveraged, the risks described above would increase. We may also have difficulty refinancing our existing debt or incurring new debt on terms that we would consider to be commercially reasonable, if at all.


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Car sales depend in part on the availability of affordable financing.
In certain regions, financing for new car sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. Recent pronouncements of governments and central banks point to a change in the policy environment that may lead to a gradual contraction of monetary policies in coming periods. To the extent that interest rates rise generally, market rates for new car financing are expected to rise as well, which may make our cars less affordable to clients or cause consumers to purchase less expensive cars, adversely affecting our results of operations and financial condition. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, our clients may choose not to, or may not be able to, obtain financing to purchase our cars.
We may not be able to provide adequate access to financing for our dealers and clients, and our financial services operations may be disrupted.
Our dealers enter into wholesale financing arrangements to purchase cars from us to hold in inventory or to use in showrooms and facilitate retail sales, and retail clients use a variety of finance and lease programs to acquire cars.
In most markets, we rely either on controlled or associated finance companies or on commercial relationships with third parties, including third party financial institutions, to provide financing to our dealers and retail clients. Finance companies are subject to various risks that could negatively affect their ability to provide financing services at competitive rates, including:
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the performance of loans and leases in their portfolio, which could be materially affected by delinquencies or defaults;
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higher than expected car return rates and the residual value performance of cars they lease; and
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fluctuations in interest rates and currency exchange rates.

Furthermore, to help fund our retail and wholesale financing business, our financial services companies in the United States also access forms of funding available from the banking system in each market, including sales or securitization of receivables either in negotiated sales or through securitization programs. At December 31, 2019, an amount of $886 million was outstanding under revolving securitizations carried out by Ferrari Financial Services Inc. See “Item 5.B. Liquidity and Capital Resources” . Should we lose the ability to access the securitization market at advantageous terms or at all, the funding of our wholesale financing business would become more difficult and expensive and our financial condition may be adversely affected.
Any financial services provider, including our controlled finance companies, will face other demands on its capital, as well as liquidity issues relating to other investments or to developments in the credit markets. Furthermore, they may be subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to our dealers and retail clients. To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail clients, such dealers and retail clients may not have sufficient access to financing to purchase or lease our cars. As a result, our car sales and market share may suffer, which would adversely affect our results of operations and financial condition.

Our dealer and retail customer financing in Europe are mainly provided through our partnership with FCA Bank S.p.A. (“FCA Bank”), a joint venture between FCA Italy S.p.A. and Crédit Agricole Consumer Finance S.A. (“CACF”). If we fail to maintain our partnership with FCA Bank or in the event of a termination of the joint venture or change of control of one of our joint venture partners, we may not be able to find a suitable alternative partner with similar resources and experience and continue to offer financing services to support the sales of Ferrari cars in key European markets, which could adversely affect our results of operations and financial condition.

Labor laws and collective bargaining agreements with our labor unions could impact our ability to operate efficiently.
All of our production employees are represented by trade unions, are covered by collective bargaining agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce costs quickly in response to changes in market conditions. These regulations and the provisions in our collective bargaining agreements may impede our ability to restructure our business successfully to compete more efficiently and effectively, especially with those automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our results of operations and financial condition.

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We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks.
We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency and interest rates. In particular, changes in exchange rates between the Euro and the main foreign currencies in which we operate affect our revenues and results of operations. The exposure to currency risk is mainly linked to the differences in geographic distribution of our sourcing and manufacturing activities from those in our commercial activities, as a result of which our cash flows from sales are denominated in currencies different from those connected to purchases or production activities. For example, we incur a large portion of our capital and operating expenses in Euro while we receive the majority of our revenues in currencies other than Euro. In addition, foreign exchange movements might also negatively affect the relative purchasing power of our clients which could also have an adverse effect on our results of operations. For example, the U.S. Dollar remained relatively stable during the course of 2019, while the pound sterling remained subject to some volatility against the Euro, with an initial depreciation against the Euro followed by a reversal in trend in the second half of the year. If the U.S. Dollar were to depreciate against the Euro, we expect that it would adversely impact our revenues and results of operations. Foreign exchange volatility remained low in early 2020 and the Euro has not experienced any significant appreciation versus the main currencies to which Ferrari is exposed. The extent of adverse impacts from exchange rate fluctuations could increase if the portion of our business in countries outside of Eurozone increases. See “Item 5. “ Operating and Financial Review, Trends, Uncertainties and Opportunities ”.
We seek to manage risks associated with fluctuations in currency through financial hedging instruments. Although we seek to manage our foreign currency risk in order to minimize any negative effects caused by rate fluctuations, including through hedging activities, there can be no assurance that we will be able to do so successfully, and our business, results of operations and financial condition could nevertheless be adversely affected by fluctuations in market rates, particularly if these conditions persist.
Our financial services activities are also subject to the risk of insolvency of dealers and retail clients, as well as unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such risks through the credit approval policies applied to dealers and retail clients, there can be no assurances that we will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.
Changes in tax, tariff or fiscal policies could adversely affect demand for our products.
Imposition of any additional taxes and levies designed to limit the use of automobiles could adversely affect the demand for our vehicles and our results of operations. Changes in corporate and other taxation policies as well as changes in export and other incentives given by various governments, or import or tariff policies, could also adversely affect our results of operations. In addition, in the last months of 2018, the United States administration declared that it is considering imposing new tariffs on imported cars; such decision was again postponed in May 2019, and a final decision has not been made by the United States administration to date. Considerable uncertainty surrounds the introduction and scope of tariffs by the United States or other countries, as well as the potential for additional trade actions by the United States or other countries. The impact of any such tariffs on our operations and results is uncertain and could be significant, and we can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. While we are managing our product development and production operations on a global basis to reduce costs and lead times, unique national or regional standards can result in additional costs for product development, testing and manufacturing. Governments often require the implementation of new requirements during the middle of a product cycle, which can be substantially more expensive than accommodating these requirements during the design phase of a new product. The imposition of any additional taxes and levies or change in government policy designed to limit the use of high performance sports cars or automobiles more generally, or any decisions by policymakers to implement taxes on luxury automobiles, could also adversely affect the demand for our cars. The occurrence of the above may have a material adverse effect on our business, results of operations and financial condition.
If we were to lose our Authorized Economic Operator certificate, we may be required to modify our current business practices and to incur increased costs, as well as experience shipment delays.
Because we ship and sell our cars in numerous countries, the customs regulations of various jurisdictions are important to our business and operations. To expedite customs procedure, we applied for, and currently hold, the European Union’s Authorized Economic Operator (AEO) certificate. The AEO certificate is granted to operators that meet certain requirements regarding supply chain security and the safety and compliance with law of the operator’s customs controls and procedures. Operators are audited periodically for continued compliance with the requirements. The AEO certificate allows us to benefit from special expedited customs treatment, which significantly facilitates the shipment of our cars in the various markets where we operate. The AEO certificate was subject to mandatory audit review in 2019 and renewal of the AEO certification was

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obtained. If we were to lose the AEO status, including for failure to meet one of the certification’s requirements, we would be required to change our business practices and to adopt standard customs procedures for the shipment of our cars. This could result in increased costs and shipment delays, which, in turn, could negatively affect our results of operations.


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Risks Related to our Common Shares
The market price and trading volume of our common shares may be volatile, which could result in rapid and substantial losses for our shareholders.
The market price of our common shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, a shareholder may be unable to sell their common shares at or above their purchase price, if at all. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our common shares, or result in fluctuations in the price or trading volume of our common shares, include:
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variations in our operating results, or failure to meet the market’s earnings expectations;
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publication of research reports about us, the automotive industry or the luxury industry, or the failure of securities analysts to cover our common shares;
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departures of any members of our management team or additions or departures of other key personnel;
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adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
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actions by shareholders;
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changes in market valuations of similar companies;
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changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws and regulations, or announcements relating to these matters;
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adverse publicity about the automotive industry or the luxury industry generally, or particularly scandals relating to those industries, specifically;
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litigation and governmental investigations; and
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general market and economic conditions.
The loyalty voting program may affect the liquidity of our common shares and reduce our common share price .
The implementation of our loyalty voting program could reduce the trading liquidity and adversely affect the trading prices of our common shares. The loyalty voting program is intended to reward our shareholders for maintaining long-term share ownership by granting initial shareholders and persons holding our common shares continuously for at least three years the option to elect to receive special voting shares. Special voting shares cannot be traded and, if common shares participating in the loyalty voting program are sold they must be deregistered from the loyalty register and any corresponding special voting shares transferred to us for no consideration ( om niet ). This loyalty voting program is designed to encourage a stable shareholder base and, conversely, it may deter trading by shareholders that may be interested in participating in our loyalty voting program. Therefore, the loyalty voting program may reduce liquidity in our common shares and adversely affect their trading price.
The interests of our largest shareholders may differ from the interests of other shareholders.
Exor N.V. (“Exor”) is our largest shareholder, holding approximately 24.0 percent of our outstanding common shares and approximately 35.8 percent of our voting power (as of February 7, 2020). Therefore, Exor has a significant influence over these matters submitted to a vote of our shareholders, including matters such as adoption of the annual financial statements, declarations of annual dividends, the election and removal of the members of our board of directors (the “Board of Directors”), capital increases and amendments to our articles of association. In addition, as of February 7, 2020, Piero Ferrari, the Vice Chairman of Ferrari, holds approximately 10.2 percent of our outstanding common shares and approximately 15.2 percent of voting interest in us (as of February 7, 2020). The percentages of ownership and voting power above are calculated based on the number of outstanding shares net of treasury shares. As a result, he also has influence in matters submitted to a vote of our shareholders. Exor and Piero Ferrari informed us that they have entered into a shareholder agreement pursuant to which they have undertaken to consult for the purpose of forming, where possible, a common view on the items on the agenda of shareholders meetings. See “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Agreement ”. The interests of Exor and Piero Ferrari may in certain cases differ from those of other shareholders. In addition,

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the sale of substantial amounts of our common shares in the public market by Piero Ferrari or the perception that such a sale could occur could adversely affect the prevailing market price of the common shares.
We may have potential conflicts of interest with FCA and Exor and its related companies.
Questions relating to conflicts of interest may arise between us and FCA, our former largest shareholder, in a number of areas relating to common shareholdings and management, as well as our past and ongoing relationships. There are certain overlaps among the directors and officers of us and FCA. For example, Mr. John Elkann, our Executive Chairman, is the Chairman and an executive director of FCA and Chairman and Chief Executive Officer of Exor. Certain of our other directors and officers may also be directors or officers of FCA or Exor, our and FCA’s largest shareholder. These individuals owe duties both to us and to the other companies that they serve as officers and/or directors, which may create conflicts as, for example, these individuals review opportunities that may be appropriate or suitable for both us and such other companies, or we pursue business transactions in which both we and such other companies have an interest, such as our arrangement to supply engines for Maserati cars. Exor holds approximately 24.0 percent of our outstanding common shares and approximately 35.8 percent of the voting power in us (as of February 7, 2020), while it holds approximately 29.0 percent of the outstanding common shares and approximately 42.1 percent of the voting power in FCA (based on SEC filings). The percentages of ownership and voting power above are calculated based on the number of outstanding shares net of treasury shares. Exor also owns a controlling interest in CNH Industrial N.V., which was part of the FCA Group before its spin-off several years ago. These ownership interests could create actual, perceived or potential conflicts of interest when these parties or our common directors and officers are faced with decisions that could have different implications for us and FCA or Exor, as applicable.
Our loyalty voting program may make it more difficult for shareholders to acquire a controlling interest in Ferrari, change our management or strategy or otherwise exercise influence over us, which may affect the market price of our common shares.
The provisions of our articles of association which establish the loyalty voting program may make it more difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control were considered favorably by shareholders holding a majority of our common shares. As a result of the loyalty voting program, a relatively large proportion of the voting power of Ferrari could be concentrated in a relatively small number of shareholders who would have significant influence over us. As of February 7, 2020, Exor had approximately 24.0 percent of our outstanding common shares and a voting interest in Ferrari of approximately 35.8 percent. As of February 7, 2020, Piero Ferrari held approximately 10.2 percent of our outstanding common shares and, as a result of the loyalty voting mechanism, had approximately 15.2 percent of the voting power in our shares. The percentages of ownership and voting power above are calculated based on the number of outstanding shares net of treasury shares. In addition, Exor and Piero Ferrari informed us that they have entered into a shareholder agreement, summarized under “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders ’ Agreement ”. As a result, Exor and Piero Ferrari may exercise significant influence on matters involving our shareholders. Exor and Piero Ferrari and other shareholders participating in the loyalty voting program may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit our shareholders. The loyalty voting program may also prevent or discourage shareholder initiatives aimed at changing Ferrari’s management or strategy or otherwise exerting influence over Ferrari. See “Item 10.B. Memorandum and Articles of Association—The Ferrari Shares, Articles of Association and Terms and Conditions of the Special Voting Shares ”.
We are a Dutch public company with limited liability, and our shareholders may have rights different to those of shareholders of companies organized in the United States.
The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions. We are a Dutch public company with limited liability ( naamloze vennootschap ). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of our shareholders and the responsibilities of members of our Board of Directors may be different from the rights of shareholders and the responsibilities of members of board of directors in companies governed by the laws of other jurisdictions including the United States. In the performance of its duties, our Board of Directors is required by Dutch law to consider our interests and the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.

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We expect to maintain our status as a “foreign private issuer” under the rules and regulations of the SEC and, thus, are exempt from a number of rules under the Exchange Act of 1934 and are permitted to file less information with the SEC than a company incorporated in the United States.
As a “foreign private issuer,” we are exempt from rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning us than there is for U.S. public companies.
Our ability to pay dividends on our common shares may be limited and the level of future dividends is subject to change.
Our current dividend policy is set forth in “Item 8.A. Consolidated Statements and Other Financial Information—Dividend Policy ”. Our payment of dividends on our common shares in the future will be subject to business conditions, financial conditions, earnings, cash balances, commitments, strategic plans and other factors that our Board of Directors may deem relevant at the time it recommends approval of the dividend. Our dividend policy is subject to change in the future based on changes in statutory requirements, market trends, strategic developments, capital requirements and a number of other factors. In addition, under our articles of association and Dutch law, dividends may be declared on our common shares only if the amount of equity exceeds the paid up and called up capital plus the reserves that have to be maintained pursuant to Dutch law or the articles of association. Further, even if we are permitted under our articles of association and Dutch law to pay cash dividends on our common shares, we may not have sufficient cash to pay dividends in cash on our common shares. We are a holding company and our operations are conducted through our subsidiaries. As a result, our ability to pay dividends primarily depends on the ability of our subsidiaries, particularly Ferrari S.p.A., to generate earnings and to provide us with the necessary financial resources.
Our maintenance of two exchange listings may adversely affect liquidity in the market for our common shares and could result in pricing differentials of our common shares between the two exchanges.
Our shares are listed on both the New York Stock Exchange (“NYSE”) and the Mercato Telematico Azionario (“MTA”). The dual listing of our common shares may split trading between the NYSE and the MTA, adversely affect the liquidity of the shares and the development of an active trading market for our common shares in one or both markets and may result in price differentials between the exchanges. Differences in the trading schedules, as well as volatility in the exchange rate of the two trading currencies, among other factors, may result in different trading prices for our common shares on the two exchanges.

It may be difficult to enforce U.S. judgments against us.
We are organized under the laws of the Netherlands, and a substantial portion of our assets are outside of the United States. Most of our directors and senior management and our independent auditors are resident outside the United States, and all or a substantial portion of their respective assets may be located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these persons. It may also be difficult for U.S. investors to enforce within the United States judgments against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and our independent auditors.
FCA creditors may seek to hold us liable for certain FCA obligations.
One step of our Separation from FCA included a demerger from FCA of our common shares previously held by it. In connection with a demerger under Dutch law, the demerged company may continue to be liable for certain obligations of the demerging company that exist at the time of the demerger, but only to the extent that the demerging company fails to satisfy such liabilities. Based on other actions taken as part of the Separation, we do not believe we retain any liability for obligations of FCA existing at the time of the Separation. Nevertheless, in the event that FCA fails to satisfy obligations to its creditors existing at the time of the demerger, it is possible that those creditors may seek to recover from us, claiming that we remain liable to satisfy such obligations. While we believe we would prevail against any such claim, litigation is inherently costly and uncertain and could have an adverse effect. See “Item 4.A. History and Development of the Company ”.

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Risks Related to Taxation
Changes to taxation or the interpretation or application of tax laws could have an adverse impact on our results of operations and financial condition.
Our business is subject to various taxes in different jurisdictions (mainly Italy), which include, among others, the Italian corporate income tax (“IRES”), regional trade tax (“IRAP”), value added tax (“VAT”), excise duty, registration tax and other indirect taxes. We are exposed to the risk that our overall tax burden may increase in the future.
Changes in tax laws or regulations or in the position of the relevant Italian and non-Italian authorities regarding the application, administration or interpretation of these laws or regulations, particularly if applied retrospectively, could have negative effects on our current business model and have a material adverse effect on our business, operating results and financial condition.
In order to reduce future potential disputes with tax authorities, we seek advance agreements with tax authorities on significant matters. In particular we filed a ruling application for advance pricing agreement (APA) on transfer pricing.
In addition, tax laws are complex and subject to subjective valuations and interpretive decisions, and we will periodically be subject to tax audits aimed at assessing our compliance with direct and indirect taxes. The tax authorities may not agree with our interpretations of, or the positions we have taken or intend to take on, tax laws applicable to our ordinary activities and extraordinary transactions. In case of challenges by the tax authorities to our interpretations, we could face long tax proceedings that could result in the payment of penalties and have a material adverse effect on our operating results, business and financial condition.
As a result of the demergers and the merger in connection with the Separation, we might be jointly and severally liable with FCA for certain tax liabilities arisen in the hands of FCA.
Although the Italian tax authorities confirmed in a positive advance tax ruling issued on October 9, 2015 that the demergers and the Merger that was carried out in connection with the Separation would be respected as tax-free, neutral transactions from an Italian income tax perspective, under Italian tax law we may still be held jointly and severally liable, as a result of the combined application of the rules governing the allocation of tax liabilities in case of demergers and mergers, with FCA for taxes, penalties, interest and any other tax liability arising in the actions of FCA because of violations of its tax obligations related to tax years prior to the two Demergers described in the section “Item 4.A. History and Development of the Company ”.
There may be potential “Passive Foreign Investment Company” tax considerations for U.S. holders.
Shares of our stock would be stock of a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes with respect to a U.S. holder (as defined in “Item 10.E. Taxation—Material U.S. Federal Income Tax Consequences ” below) if for any taxable year in which such U.S. holder held shares of our stock, after the application of applicable “look-through rules” (i) 75 percent or more of our gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50 percent of our assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of “passive income”. U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
While we believe that shares of our stock are not stock of a PFIC for U.S. federal income tax purposes, this conclusion is based on a factual determination made annually and thus is subject to change. Moreover, our common shares may become stock of a PFIC in future taxable years if there were to be changes in our assets, income or operations. See “Item 10.E. Taxation—PFIC Considerations ” for a further discussion.

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The consequences of the loyalty voting program are uncertain.
No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special voting shares should be treated for Italian or U.S. tax purposes and as a result, the tax consequences in those jurisdictions are uncertain.
The fair market value of the special voting shares, which may be relevant to the tax consequences, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, our special voting shares are not transferable (other than, in very limited circumstances, together with the associated common shares) and a shareholder will receive amounts in respect of the special voting shares only if we are liquidated, we believe and intend to take the position that the fair market value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by us is incorrect.
The tax treatment of the loyalty voting program is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of special voting shares. See “Item 10.E. Taxation—Loyalty Voting Program ” for a further discussion.
We currently benefit or seek to benefit from certain special tax regimes, which may not be available in the future.
We currently calculate taxes due in Italy based, among other things, on certain tax breaks recognized by Italian tax regulations for R&D expenses and for the investments on manufacturing equipment (available until fiscal year 2019 according to current regulations), which result in a tax saving. Law no. 160/2019 or “Budget Law 2020”, introduced new rules relating to tax breaks. In particular the hyper- and super-depreciation have been modified into a tax credit for the purchase of new capital assets. The Budget Law 2020 also introduced new tax credits for (i) technological innovation and ecological transition, and (ii) the design and creation of new products and samples.
These new measures continue to mitigate the amount of taxes due in Italy. Significant changes in regulations or interpretation might adversely affect the availability of such exemptions and result in higher tax charges.
Italian Law No. 190 of December 2014, as subsequently amended and supplemented (Finance Act 2015) introduced an optional Patent Box regime in the Italian tax system. The Patent Box regime is a tax exemption related to, inter alia , the use of intellectual property assets. Business income derived from the use of each qualified intangible asset is partially exempted from taxation for both IRES and IRAP purposes. In September 2018 we received the mandatory ruling from the Italian tax authorities according to which we are able to significantly reduce our tax expenses. The ruling covers the period starting from 2015 and it remains in force until fiscal year 2019. The Group is progressing with the required activities to apply the Patent Box tax regime for the period from 2020 to 2024, in line with currently applicable tax regulations in Italy. The amount of the related tax benefits (if any) that the Group may receive from the tax regime remains subject to uncertainty.


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Item 4. Information on the Company

A. History and Development of the Company
Ferrari was incorporated as a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on September 4, 2015 with an indefinite duration. Our official seat ( statutaire zetel ) is in Amsterdam, the Netherlands, and our corporate address and principal place of business are located at Via Abetone Inferiore n. 4, I-41053 Maranello (MO), Italy. Ferrari is registered with the Dutch Trade Register of the Chamber of Commerce under number 64060977. Its telephone number is +39-0536-949111. The name and address of the Company’s agent in the United States is: Ferrari North America, Inc., 250 Sylvan Avenue, Englewood Cliffs, NJ 07632. Its telephone number is +1 (201) 816 2600.
Our company is named after our founder Enzo Ferrari. An Alfa Romeo driver since 1924, Enzo Ferrari founded his own racing team, Scuderia Ferrari, in Modena in 1929 initially to race Alfa Romeo cars.  In 1939 he set up his own company, initially called Auto Avio Costruzioni.  In late 1943, Enzo Ferrari moved his headquarters from Modena to Maranello, which remains our headquarters to this day.
In 1947, we produced our first racing car, the 125 S. The 125 S’s powerful 12 cylinder engine would go on to become synonymous with the Ferrari brand. In 1948, the first road car, the Ferrari 166 Inter, was produced. Styling quickly became an integral part of the Ferrari brand.
In 1950, we began our participation in the Formula 1 World Championship, racing in the world’s second Grand Prix in Monaco, which makes Scuderia Ferrari the longest running Formula 1 team. We won our first Constructor World Title in 1952. Our success on the world’s tracks and roads extends beyond Formula 1, including victories in some of the most important car races such as the 24 Hours of Le Mans, the world’s oldest endurance automobile race, and the 24 Hours of Daytona.
The Fiat group acquired a 50 percent stake in Ferrari S.p.A. in 1969 and increased its stake to 90 percent in 1988 following the death of Enzo Ferrari, with the remaining 10 percent held by Enzo Ferrari’s son, Piero Ferrari.
Ferrari became an independent, publicly traded company following its separation from FCA (the “Separation”), which was completed on January 3, 2016 and occurred through a series of transactions including (i) an intragroup restructuring which resulted in the Company’s acquisition of the assets and business of Ferrari North Europe Limited and the transfer by FCA of its 90 percent shareholding in Ferrari S.p.A. to the Company, (ii) the transfer of Piero Ferrari’s 10 percent shareholding in Ferrari S.p.A. to the Company, (iii) the initial public offering of common shares of the Company on the New York Stock Exchange in October 2015 under the ticker symbol RACE, and (iv) the distribution, following the initial public offering, of FCA’s remaining interest in the Company to FCA’s shareholders. On January 4, 2016 the Company also completed the listing of its common shares on the Mercato Telematico Azionario, the stock exchange managed by Borsa Italiana, under the ticker symbol RACE.
For information on the SEC’s website and our website, please refer to “Item 10.H . Documents on Display ”.


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B. Business Overview

Business Summary
Ferrari is among the world’s leading luxury brands, focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 166 authorized dealers operating 187 points of sale as of the end of 2019.
We believe our cars are the epitome of performance, luxury and styling. Our product offering comprises four main pillars: the sports range, the GT range, special series and Icona, a line of modern cars inspired by our iconic cars of the past. Our current product range (including cars presented in 2019, for which shipments will commence in 2020) is comprised of five sports cars (SF90 Stradale, F8 Tributo, F8 Spider, 812 Superfast and 812 GTS), four GT cars (Ferrari Roma, Ferrari Portofino, GTC4Lusso and GTC4Lusso T) and two special series cars (488 Pista and 488 Pista Spider), as well as two versions of our first Icona car, the Ferrari Monza SP1 and the Ferrari Monza SP2. We also produce limited edition hypercars, fuori serie and one-off cars. Our most recent hypercar, the LaFerrari Aperta, was launched in 2016 to celebrate our 70 th Anniversary and finished its limited series run in 2018. In 2019, we unveiled the SF90 Stradale (our first series production Plug-in Hybrid Electric Vehicle (PHEV)), the F8 Tributo, the F8 Spider, the 812 GTS and the Ferrari Roma, with shipments of the F8 Tributo commencing in the fourth quarter of 2019 and shipments of the other cars expected to commence in 2020.

In 2019 , we shipped 10,131 cars and recorded net revenues of €3,766 million , EBIT of €917 million , net profit of €699 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €1,269 million . For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP measures we present, see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures ”.

Whilst broadening our product portfolio to target a larger customer base, we continue to pursue a low volume production strategy in order to maintain a reputation for exclusivity and scarcity among purchasers of our cars and we carefully manage our production volumes and delivery waiting lists to promote this reputation. We divide our regional markets into EMEA, Americas, Mainland China, Hong Kong and Taiwan, and Rest of APAC, representing respectively 48.3 percent , 28.6 percent , 8.3 percent and 14.8 percent of units shipped in 2019 .

We focus our marketing and promotion efforts in the investments we make in our racing activities and in particular, Scuderia Ferrari’s participation in the Formula 1 World Championship, which is one of the most watched annual sports series in the world, with approximately 405.5 million unique television viewers in 2019 in the top 20* markets ( Source: Formula 1 Press Office ). Although our most recent Formula 1 world title was in 2008, we continuously enhance our focus on Formula 1 activities with the goal of improving racing results and restoring our historical position as the premier racing team in Formula 1. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.
We license the Ferrari brand to a selected number of producers and retailers of luxury and lifestyle goods. In addition, we design, source and sell Ferrari-branded products through a network of 20 Ferrari-owned stores and 24 franchised stores (including 15 Ferrari Store Junior), as well as on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brand in attractive and growing lifestyle categories consistent with our image, including sportswear, watches, accessories, consumer electronics and theme parks which, we believe, enhance the brand experience of our loyal clients and Ferrari enthusiasts.

__________________________

(*)     Top 20 markets are, in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdom and United States.


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We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the growth of the premium luxury market. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.


Industry Overview
Within the luxury goods market, we define our target market for luxury performance cars as two-door cars powered by engines producing more than 500 hp and selling at a retail price in excess of Euro 150,000 (including VAT). The luxury performance car market historically has followed relatively closely growth patterns in the broader luxury market. The luxury performance car market is generally affected by global macroeconomic conditions and, although we and certain other manufacturers have proven relatively resilient, general downturns can have a disproportionate impact on sales of luxury goods in light of the discretionary nature of consumer spending in this market. Furthermore, because of the emotional nature of the purchasing decision, economic confidence and factors such as expectations regarding future income streams as well as the social acceptability of luxury goods may impact sales.
Following the sharp recession of 2008-2009, the luxury performance car market has been resilient to further economic downturns and stagnation in the broader economy, also a result of the increase of new product launches. A sustained period of wealth creation in several Asian countries and, to a lesser extent, in the Americas, has led to an expanding population of potential consumers of luxury goods. Developing consumer preferences in the Asian markets, where the newly affluent are increasingly embracing western brands of luxury products, have also led to higher demand for cars in our segment, which are all produced by established European manufacturers. In turn, the changing demographic of customers and potential customers is driving an evolution towards luxury performance cars more suited to an urban, daily use.
Additionally, the growing appetite of younger affluent purchasers for luxury performance cars has led to new entrants, which in turn has resulted in higher sales overall in the market.
Unlike in other segments of the broader luxury market, however, in the luxury performance car market, a significant portion of demand is driven by new product launches. The market share of individual producers fluctuates over time reflecting the timing of product launches. New launches tend to drive sales volumes even in difficult market environments because the novelty, exclusivity and excitement of a new product is capable of creating and capturing its own demand from clients.
Growing environmental concerns are leading to the implementation of increasingly stringent emissions regulations and an increase in demand for both hybrid and electric vehicles. Cost and limited charging infrastructure are currently limiting factors in the demand for electric vehicles, but advancements in battery technology in coming years are expected to boost sales of hybrid and electric high performance luxury vehicles, although at a slower pace compared to mass market vehicles. The ability to combine driving experience with hybrid and electric technology will be key for the commercial success of high performance luxury vehicles.

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luxuryindustrygraph.jpg

•
Ferrari and Luxury Performance Car Industry data are updated to December 31, 2019.

•
Data for the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Honda/Acura, Lamborghini, McLaren, Mercedes Benz, Porsche and Rolls-Royce.

•
Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87% of the total Ferrari shipments in 2019).

•
Data for the Luxury Performance Car Industry based on units registered (in Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France-SIV; Germany-KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia-VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA.

As shown in the chart above, our volumes in recent years have proven less volatile than our competitors’. We believe this is due to our strategy of maintaining low volumes compared to demand, as well as the higher number of models in our range and our more frequent product launches compared to our competitors.

In 2019, our volumes in the largest 22 markets slightly increased compared to 2018, primarily driven by contribution from our range models. In 2019, we had a market share of 23 percent in the luxury performance car market; with 25 percent of market share in the sports car segment and 19 percent of market share in the GT segment.

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The chart below sets forth our market shares in 2019 based on volumes in our largest 22 markets by geographical area.

top22marketsa04.jpg
Ferrari and Luxury Performance Car Industry data are updated to December 31, 2019.
•
Data for the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Lamborghini, McLaren, Mercedes Benz, Porsche and Rolls-Royce.
•
Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87% of the total Ferrari shipments in 2019).
•
Data for the Luxury Performance Car Industry based on units registered (Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France-SIV; Germany-KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia-VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA.
•
Ferrari is market leader in several countries, including France, Italy, Mainland China, Japan and South Korea, among others.

While we monitor our market share as an indicator of our brand appeal, we do not regard market share in the luxury performance market as particularly relevant as compared to other segments of the automotive industry. We are not focused on market share as a performance metric. Instead, we deliberately manage our supply relative to demand, to defend and promote our brand exclusivity and premium pricing.


Competition
Competition in the luxury performance car market is concentrated in a fairly small number of producers, including both large automotive companies that own luxury brands as well as small producers exclusively focused on luxury cars, like us. The luxury performance car market includes sports cars and GT cars.

Our sports car models are the F8 Tributo, the F8 Spider, the 812 Superfast, the 812 GTS and our first series production Plug-in Hybrid Electric Vehicle (PHEV), the SF90 Stradale, as well as our latest special series models, the 488 Pista and 488 Pista Spider, and our principal competitors are Lamborghini, McLaren, Ford, Honda, Porsche, Mercedes, Aston Martin and Audi. Our GT range models are the Ferrari Portofino, the GTC4Lusso, the GTC4Lusso T, and the most-recent, the Ferrari Roma, and our principal competitors are Rolls-Royce, Bentley, BMW, Aston Martin and Mercedes.

In recent years, the market has shifted somewhat with an increased focus on the GT cars segment and the lower priced range of the sports car market, with larger automotive groups expanding their offering of premium cars to enter the luxury performance car market.

Competition in the luxury performance car market is driven by the strength of the brand and the appeal of the products in terms of performance, styling, novelty and innovation as well as on the manufacturers’ ability to renew its product offerings regularly in order to continue to stimulate customer demand.

Competition among similarly positioned luxury performance cars is also driven by price and total cost of ownership. Resilience of the car value after a period of ownership is an important competitive dimension among similarly positioned luxury cars, as a higher resilience decreases the total cost of ownership and promotes repeat purchases: we believe this is a strong competitive advantage of Ferrari cars.

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Sports and GT Range, Special Series and Icona: Ferrari Line-Up Strategic Pillars
a4pillarsa01.jpg
Our product offering comprises four main strategic pillars: the sports range, the GT range, special series and Icona. Our current product range includes five sports cars, four GT cars and two special series cars, as well as our Icona cars, introduced in September 2018 with the Ferrari Monza SP1 and SP2. We target end clients seeking high performance cars with distinctive design and state of the art technology. Our broad model range is designed to fulfill the strategy of “Different Ferrari for different Ferraristi, different Ferrari for different moments”, which means being able to offer a highly differentiated product line-up that can meet the varying needs of new customer segments (in terms of sportiness, comfort, on-board space, design) and that can allow our existing clients to use a Ferrari in every moment of their lives. Our diversified product offering includes different architectures (such as front-engine and mid-rear engine), engine sizes (V8 and V12), technologies (atmospheric, turbo-charged, hybrid, electric), body styles (such as coupes and spiders), and seats (2 seaters, 2+2 seaters and 4 seaters).
We are also actively engaged in after sales activities driven, among other things, by the objective of preserving and extending the market value of the cars we sell. We believe our cars’ performance in terms of value preservation after a period of ownership significantly exceeds that of any other brand in the luxury car segment. High residual value is important to the primary market because clients, when purchasing our cars, take into account the expected resale value of the car in assessing the overall cost of ownership. Furthermore, a higher residual value potentially lowers the cost for the owner to switch to a new model thereby supporting client loyalty and promoting repeat purchases.

a4pillarsbreakdown.jpg

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The charts below set forth the percentage of our unit shipments (excluding the XX Programme, racing cars, Fuori Serie, one-off and pre-owned cars) for the years ended December 31, 2019 , 2018 and 2017 by pillar:
shipmentsbypillar2019a02.jpg
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(*)     Includes shipments of the LaFerrari and LaFerrari Aperta.
(**) Shipments of Icona cars commenced in 2019, and contributed to less than 1 percent of our shipments for that year.

The table and charts below set forth our unit shipments (1) for the years ended December 31, 2019 , 2018 and 2017 , by geographic market:
(Number of cars and % of total cars)
For the years ended December 31,
2019
%
2018
%
2017
%
EMEA
UK
1,120

11.1
%
981

10.6
%
843

10.0
%
Germany
967

9.5
%
803

8.7
%
710

8.5
%
Italy
559

5.5
%
479

5.2
%
417

5.0
%
Switzerland
454

4.5
%
380

4.1
%
339

4.0
%
France
452

4.5
%
399

4.3
%
346

4.1
%
Middle East (2)
309

3.1
%
326

3.5
%
331

3.9
%
Other EMEA (3)
1,034

10.1
%
859

9.3
%
751

9.0
%
Total EMEA
4,895

48.3
%
4,227

45.7
%
3,737

44.5
%
Americas (4)
2,900

28.6
%
3,000

32.4
%
2,811

33.5
%
Mainland China, Hong Kong and Taiwan
836

8.3
%
695

7.5
%
617

7.3
%
Rest of APAC (5)
1,500

14.8
%
1,329

14.4
%
1,233

14.7
%
Total
10,131

100.0
%
9,251

100.0
%
8,398

100.0
%
__________________________
(1)
Excluding the XX Progamme, racing cars, Fuori Serie, one-off and pre-owned cars
(2)
Middle East includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait
(3)
Rest of EMEA includes Africa and the other European markets not separately identified
(4)
Americas includes the United States of America, Canada, Mexico, the Caribbean and Central and South America
(5)
Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia

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shipmentsbygeographya04.jpg
Sports Range
Our sports cars are characterized by compact bodies, a design guided by performance and aerodynamics, and often benefit from technologies initially developed for our Formula 1 single-seaters. They favor performance over comfort, seeking to provide a driver with an immediate response and superior handling, leveraging state of the art vehicle dynamics components and controls. In our sports car class, we offer five models: the SF90 Stradale, our first series production car which features PHEV technology that combines a V8 engine (780 hp) with three electric motors that allow the car to reach 1000 hp; the F8 Tributo and the F8 Spider are equipped with a mid-rear V8 engine (720 hp), a 4 time winner of the engine of the year award; the 812 Superfast and the 812 GTS are equipped with a front V12 engine (800 hp).
GT Range

Our GT cars, while maintaining the performance expected of a Ferrari, are characterized by more refined interiors with a higher focus on comfort and on-board life quality. In our GT class, we offer three models equipped with our V8 engine, the Ferrari Roma (620 hp), combining sportiness and elegant design; the Ferrari Portofino (600 hp) and the GTC4Lusso T (610 hp), the first Ferrari 4 seater equipped with a V8 turbo engine. We also offer one GT model equipped with our V12 engine, the GTC4Lusso (690 hp), our sport-luxury 4 seater and 4 wheel drive.
The following picture depicts the four dimensions of our customer value proposition for our sports and GT range models:
customervalueproposition.jpg

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Special Series
From time to time, we also design, engineer and produce special series cars which can be limited in time or volume and are usually based on our range sports models but introduce novel product concepts. These cars are characterized by significant modifications designed to enhance performance and driving emotions. Our special series cars are particularly targeted to collectors and, from a commercial and product development standpoint, they facilitate the transition from existing to new range models. Our current special series cars are the 488 Pista, powered by a 720 hp V8 engine, and its retractable hard top version, the 488 Pista Spider (720 hp).
Icona
In September 2018, we introduced a new pillar of our product portfolio: the Icona, a unique concept that takes inspiration from the iconic cars of our history and reinterprets them in a modern fashion, pairing timeless design with state-of-the-art materials and technology. The first examples of this strictly limited-edition product line-up are the Ferrari Monza SP1 and SP2, which are inspired by the classic collectible barchetta cars, the 750Monza and 860Monza.
Limited Edition Hypercars, Fuori Serie and One-Offs

In line with our tradition of hypercars starting with the 288GTO in 1984 up to the Enzo in 2002 and the LaFerrari Aperta, our latest hypercar launched in 2016, we also produce limited edition hypercars. These are the highest expression of Ferrari road car performance at the time and are often the forerunners of technological innovations for future range models, with innovative features and futuristic design. Furthermore, in connection with certain events or celebrations, we also launch very limited edition cars (our fuori serie ). These models can be offered globally, or may be limited to specific local markets. Based on an exotic product concept not available on the standard Ferrari model range, these cars feature completely unique design and specifications compared to our other models.

Finally, in order to meet the varying needs of our most loyal and discerning clients, we also produce a very limited number of one-off models. While based on the chassis and equipped with engines of one of the current range models for homologation and registration purposes, these cars reflect the exact exterior and interior design specifications requested by the clients, and are produced as a single, unique car. Some of the most iconic models emerged from our One-Off program include the SP12 EC (inspired by the 512 BB and created in 2011), the F12 TRS (a radical two-seat roadster created on the platform of the F12berlinetta in 2014), the SP38 (a superlative mid-rear V8 turbo taking inspiration from the legendary Ferrari F40), the 458MM Speciale (the last mid rear model with a V8 natural aspirated engine in 2016) and the P80/C, a real track car taking inspiration from past Ferrari Sport Prototipo models.




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Personalization Offer
personalization1.jpg

All of our models feature highly customizable interior and exterior options, which are included in our personalization catalogue. Some of these options include performance contents like carbon fibre parts, carbon fibre wheels, titanium exhaust systems, alternative brake caliper colors, parking cameras, MagneRide dual mode suspension, panoramic roof option, various door panel configurations, steering wheel inserts and state of the art custom high fidelity sound systems. Commencing with the the SF90 Stradale, we have also introduced the “Assetto Fiorano” configuration, which provides numerous exclusive features for those who seek radical performance and design.

With our “Special Equipment” program, we offer clients additional customization choices for their cars. Our specialists are able to guide clients in creating a very customized car through a wide catalog of special items such as different types of rare leathers, custom stitching, special paints, special carbon fiber, and personalized luggage sets designed to match the car’s interior.

The “Tailor Made” program provides an additional level of personalization in accordance with the expectations of our clients. A dedicated Ferrari designer assists clients in selecting and applying virtually any specific design element chosen by the client. Our clients benefit from a large selection of finishes and accessories in an array of different materials (ranging from cashmere to denim), treatments and hues. To assist our clients’ choice we also offer three collections inspired by Ferrari’s own tradition: Scuderia (taking its lead from our sporting history), Classica (bringing a modern twist to the styling cues of our signature GT models) and Inedita (showcasing more experimental and innovation-led personalization).
The “One-off” program is the maximum level of personalization and exclusivity. See “ —Limited Edition Hypercars, Fuori Serie and One-Offs ” above for more details.

Design
Design is a fundamental and distinctive aspect of our products and our brand. Our designers, modelers and engineers work together to create car bodies that incorporate the most innovative aerodynamic solutions in the sleek and powerful lines typical of our cars. The interiors of our cars seek to balance functionality, aesthetics and comfort. Cockpits are designed to maximize the driving experience, tending towards more sporty or more comfortable, depending on the model. The interiors of our vehicles boast elegant and sophisticated trims and details that enhance the ergonomic layout of all main controls, many of which are clustered on the steering wheel. A guiding principle of our design is that each new model represents a clear departure from prior models and introduces new and distinctive aesthetic elements, delivering constant innovation within the furrow of tradition.

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For the design of our cars we have relied historically on Italian coachbuilders such as Carrozzeria Touring, Vignale, Scaglietti and Pininfarina. These partnerships helped Ferrari in defining its design language at the forefront of design advance. Throughout the years this area of excellence has been recognized repeatedly by a long series of awards being bestowed upon Ferrari road cars.
In 2010 we established the Ferrari Design Centre, our in-house design department, with the objective of improving control over the entire design process and ensuring long-term continuity of the Ferrari style. The mission of the Ferrari Design Centre is to define and evolve the stylistic direction of the marque, imprinting all new products with a modern stamp, according to a futuristic, uncompromised vision. The name and logo “Ferrari Design” denotes all concepts and works from Ferrari Design Centre (see “ —Intellectual Property ”). Ferrari Design handles all aspects of automotive styling for the Ferrari road cars product range, encompassing the styling of all bodywork, external components and interior trim, applied to series production models for the GT and sports car range special editions, limited editions, Iconas, one-off models, concept cars and some track-only models. Ferrari Design also includes a Color & Trim unit which manages the choice of materials and finishes for both exterior and interior trim and, in addition, is responsible for the Tailor Made program in conjunction with the Product Marketing department. Ferrari Design is also involved in the styling and conceptual definition of Ferrari branded products produced by our licensees (see “ —Brand Activities ”). In 2019, we created the Advanced Design team, a laboratory that aims at defining the brand's design vision, developing new concepts and formal languages through so far unexplored methods and tools, and trying to achieve simplification and formal purity while staying true to the Ferrari DNA which has characterized its history.
Ferrari Design is organized as an integrated automotive design studio, employing a total workforce of approximately 110 people (full-time workers as well as external contractors) including designers, 3D surfacing operators, physical modelers and graphic artists. It operates a modeling studio fully equipped with 5-axis milling machines with the capacity to develop various full-scale models (interior and exterior) in parallel.
In September 2018 we opened a new building for the Ferrari Design Centre, which is our first facility fully dedicated to the Ferrari Design. The new building hosts two Ateliers and the Tailor Made department to engage clients with Ferrari’s rich personalization services. The Ferrari Design Centre entirely designed our most recent cars, including the Ferrari Roma, the SF90 Stradale, the F8 Tributo and F8 Spider, the 812 GTS and the Ferrari Monza SP1 and SP2.
During its 10 year history, the Ferrari Design Centre has received prestigious design awards for several cars it has designed, among which in the last 2 years:
•
Ferrari Monza SP2: The Most Beautiful Supercar of the Year - Festival Automobile International, Paris (2019);
•
488 Pista: iF Design Award (2019);
•
SP38: iF Design Award - Ferrari (2019);
•
Portofino: iF Design Award (2019); UIGA - Auto Europa Sportiva (2019);
•
Ferrari Monza SP1: iF Gold Design Award (2019); Red Dot Best of The Best (2019); 2019 Good Design Award;
•
488 Pista: Red Dot Design Award (2019);
•
SP38: Red Dot Design Award (2019);
•
SF90 Stradale: 2019 Good Design Award;
•
SP38: Design Award for Concept Cars & Prototypes - Concorso d’Eleganza Villa d’Este (2018)
•
Ferrari Portofino: Red Dot Best of the Best Award (2018)
•
812 Superfast: Red Dot Design Award (2018)
•
FXX K EVO: Red Dot Design Award (2018)
•
J50: iF Gold Design Award (2018)
•
LaFerrari Aperta: iF Design Award (2018)


Product Development

Product development and technological innovation
Our development efforts take into account the three defining dimensions of Ferrari cars; performance; versatility and comfort; and driving emotions.


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Performance reflects features such as weight, horsepower, torque, aerodynamic efficiency, acceleration, and maximum speed, which all contribute to determine the lap time on track. We strive to ensure that every Ferrari is the best performing car in its segment.

Versatility derives from spaciousness, accessibility and mode of traction, including rear‑wheel‑drive or all‑wheel‑drive and, in future, electric-powered driving. Comfort results from the ease of the riding experience and on board interface. Regulation will affect development in this area - for example, a prescribed electric range may be required in future to access city centers.

Driving emotions is a key differentiator of Ferrari cars. There are three elements to driving emotions: sound, perceived acceleration and responsiveness of the car. Sound is an important part of the experience and very involving for the driver. Perceived acceleration is the driver’s subjective impression of the car acceleration beyond the actual 0-100 or 0-200 km/h performance measured in the car technical specifications. Responsiveness requires that every driver command lead to a direct and controllable reaction of the car.

These three dimensions variably interact in our sports and GT cars. As we work on the future product range, we strive to improve on each of those dimensions, focusing for sports cars on performance and driving emotions, and for GT cars on versatility and comfort on board and fun to drive - driving emotions.

a3dimensionsa01.jpg

Innovation principles
We believe there are five key guidelines to innovation at Ferrari: focus on the three key defining dimensions described above; leveraging on Formula 1 know-how; first mover positioning in core areas such powertrain and aerodynamics; customization of technologies available on the market (such as the turbo technology); and pursuit of synergies (arising from common architectures within our range). In addition to these internally driven factors, regulation is key in determining the direction of innovation.
Combustion engines

We believe internal combustion engines will remain important in Ferrari’s powertrain mix and therefore we continue to invest significantly in new combustion engine technologies and the development or use of bio-fuels. In 2018 we won the “Engine of the Year” award for the newest edition of our V8 turbocharged engine mounted on the 488 Pista.

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Going forward, Ferrari will have three engine families: we will maintain and develop the V12 naturally‑aspirated engine family, long the pinnacle of Ferrari engines; we will implement the next technological step ups for the V8 family; and we will develop a completely new V6 family based on a specific and innovative architecture.
The industry effort to combine greater power outputs with lower emissions and consumption often leads to a higher turbo lag. Through a technological breakthrough, Ferrari has engineered a turbo engine with turbo engine performance but with the response of a naturally‑aspirated engine. For example, the specific power output of the 488 Pista was increased to 184 horsepower without meaningful turbo lag.
In the future, we intend to use hybrid and electric technology, as well as Formula 1 technology, to increase specific power output without turbo lag.

We are deploying considerable resources for the development of hybrid and electric powertrains, which will be mounted on an increasingly larger proportion of our car models; this is intended to improve performance and driving experience while also satisfying customer preferences and regulatory requirements regarding emissions. With the SF90 Stradale we developed the first series production car in our range with Plug-in-Hybrid Electric Vehicle (PHEV) technology.
Architecture

In addition to engines, the other principal technical area we are focusing on is the architecture. Our architecture covers all principal technical specifications of future Ferrari models. We expect that innovation requirements will arise principally from: the evolution of engine families; the level of hybridization and electrification; modes of traction; the number of seats up to a real four-seater; and the body style, which will vary much more significantly than in the past in light of the introduction of the Purosangue.

We expect that our core architectures will be the rear‑mid‑engine architecture and the front‑mid‑engine architecture, each comprising several variants.

twoarchitecturesa01.jpg

Rear-mid-engine architecture

The rear‑mid‑engine architecture is designed to integrate multiple power units with a higher specific power output than the 488 Pista. In this architecture, combustion engines can be combined with an electric motor to realize hybridization, including a battery to enable electric range. In combination, we have developed a new and highly innovative 8-shift double‑clutch transmission gearbox. Hybridization will impact the weight of engines and therefore we will deploy new lightweight technologies to compensate this impact. Package efficiency will also be key to achieve a compact car that reduces weight and inertia. In order to apply the architecture to different powertrains, the wheelbase may vary. The first example of this new architecture is the SF90 Stradale.

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Front-mid-engine architecture

The front‑mid‑engine architecture, also a transaxle powertrain concept, is even more flexible than the rear-mid-engine architecture. This architecture is able to accommodate an all‑wheel‑drive powertrain, will allow for hybridization, and will have a flexible wheelbase suited to a variety of engines as well as seat configurations including two‑seaters and four‑seaters. It will be accessible, spacious and comfortable. Key to this architecture will be the new suspension systems we are developing, with a high range between comfort and sportiness.

New-generation human-machine interface

Particularly driven by growth in the GT segment, Ferrari has developed the next generation of human‑machine interface (HMI) technologies. Using state‑of‑the‑art technologies we will be guided by the Formula 1 derived concept of “eyes on the street, hands on the steering wheel”, for a focused, safe and enjoyable drive. The new HMI includes several new technologies, including a new head‑up display, a new innovative cluster, a new steering wheel that features new commands and a new infotainment system, as well as tools aimed at positively enhancing the passengers’ experience.
Autonomous driving

While we do not intend to develop self-driving cars, we will adopt certain features of autonomous driving technology in response to regulatory developments and customer preferences, especially in the GT segment. For example, in 2018 we launched initial functionalities for Advanced Driving Assistant Systems (ADAS) such as predictive breaking and automatic cruise control on current models, and further innovations will be introduced in future models.

Ferrari is carefully monitoring the evolution of autonomous driving technologies, including sensors and artificial intelligence, and we will select and customize those innovations compatible with the Ferrari experience. These technologies will also have an important impact on the electronic architecture of our cars.


Production and Procurement
Production Process
Our production facilities are located in Maranello and in Modena, Italy (see “Item 4.D. Property, Plant, and Equipment ”). Our production processes include supply chain management, production and distribution logistics of cars in our range models and special series, as well as assembly of prototypes and avanseries.
Notwithstanding the low volumes of cars produced, our production process requires a great variety of inputs - over 40,000 product identifier codes sourced from approximately 750 total suppliers - entailing complex supply chain management to ensure continuity of production. Our stock of supplies is warehoused in Ubersetto, near Maranello, and its management is outsourced to a third party logistics company.
Most of the manufacturing process takes place in Maranello, including aluminum alloy casting in our foundry, engine construction, mechanical machining, painting, car assembly, and bench testing; at our second plant in Modena (Carrozzeria Scaglietti) we manufacture our cars’ aluminum bodyworks. All parts and components not produced in house at Ferrari are sourced from our panel of suppliers (see “ —Procurement ”).
Between 2002 and 2012 the plants housing our production processes were entirely renovated or rebuilt and in recent years, we have continued to make significant investments in our manufacturing facilities. Equipment may require substantial investment with the introduction of new models or to maintain state of the art technology, particularly in the case of shell tools for the foundry, tools for machining, feature tools for body welding and special mounting equipment for the assembly.
As at December 31, 2019 , our production processes employed over 1,720 engineers, technicians and other personnel (approximately 1,300 workers, including approximately 240 temporary production employees and approximately 180 white collar employees). We have a flexible production organization, which allows us to adjust production capacity to accommodate our expected production requirements. This is primarily due to the low volume of cars we produce per year and to our highly skilled and flexible employee base that can be deployed across various production areas. In addition, we can adjust our make-or-buy strategies to address fluctuations in the level of demand on our internal production resources. Our facilities can

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accommodate a meaningful increase in production compared to current output with the increase of weekend shifts to address special peaks in demand. Production could be increased even further with the introduction of a second shift on car assembly lines in addition to the single shift currently operated on the V8 Assembly line. We constantly work to increase the utilization rate and reduce the internal scrap rate and we closely monitor an index of our production efficiency. In the past few years we have reduced our cycle time by approximately three percent per year. We are also committed to improve the reliability of our cars, reduce their defects, and optimize their finishing.
Unlike most low volume car producers, we operate our own foundry and machining department producing several of the main components of our engines, such as engine blocks, cylinders heads and crankshafts. We believe this accelerates product development and results in components that meet our specifications more closely.
Engine Production
Our engines are produced according to a vertical structure, from the casting of aluminum in our foundry up to the final assembly and testing of the engine. Several of the main components of our engines, such as blocks and cylinders heads are produced at our foundry in Maranello. For this purpose, we use a special aluminum alloy that includes seven percent silicon and a trace of iron, which improves mechanical integrity, and our own shell and sand casting molds. Once all components are ready, engines are assembled, on different lines for our V8 engines, V12 engines and for the V6 engines we manufacture for Maserati. The assembly process is a combination of automatic and manual operations. At the start of the assembly process, each engine is identified with a barcode and operations are recorded electronically. Every engine goes to the test benches to ensure it delivers the expected performance; 10 - 20 percent of engines are also hot tested and measured for power and torque. In 2019 we produced an average of approximately 117 engines per day, including approximately 11 V12, 45 V8 (including 5 V8 turbo and 3 V8 aspirated for Maserati) and 61 V6 engines for Maserati (see “ —Manufacturing of Engines for Maserati ”).
Body Assembly
In parallel with the assembly of our engines, we prepare our body-shells at our body shop Carrozzeria Scaglietti in Modena. The main components of body-shells are not manufactured internally but are sourced from manufacturers for chassis, bodies and carbon fiber parts. At Carrozzeria Scaglietti we have two different production lines dedicated to the assembly of our V8 and V12 aluminium bodies. We carefully check the alignment of the various parts - most importantly the engine cover and the wings - with electronic templates and gauges. Our highly trained specialists also perform surface controls on the aluminum panels and eliminate any imperfections by either filing or panel beating. In our Scaglietti plant we also have a dedicated line for the assembly of a special carbon fiber body for the Ferrari Monza SP1 and SP2.
Painting
Our paint shop was inaugurated in 2004. When transferred to our paint shop, the bodies are mounted on a loading bay, immersed in the cataphoresis tanks and subsequently transferred to a fixing gas fired oven at 140 degrees. Primers are then applied and fixed at 190 degrees until the completely grey body-shell is ready for painting. All body-shells are cleaned with automatic pressure blowers (to avoid the electrostatic effect) and carefully brushed with emu feathers (because of their natural electrostatic properties) to clean off any dirt particles or impurities before painting. The painting process is automated for the larger surfaces, while it is done by hand for some other localized areas and in the summer of 2019, we replaced the robot which performs the application of the base coat. The whole car is painted at the same time to ensure color harmony. The bodies are finally polished with lacquer to fix the paint and give the bodies their final finish. In 2018 we substituted our clear coat with a new generation 2K (bi-component) transparent coat that allows us to decrease the temperature of the oven from 140°C to 90°C; this is a very innovative and unique process that allows us to simultaneously paint aluminum and carbon fiber parts.
Assembly Line and Final Checks
The final assembly of our cars takes place in Maranello in a building constructed in 2008. We have three different lines placed at ground level and the first floor of the building. For each model, the initial assembly operations take place simultaneously on different lines and sections to maximize efficiency so while the body is assembled on the main line, the powertrain, as well as the cockpit and the doors, are prepared on a specific sub-line. In 2018, the line on the first floor moved from one shift to two shifts. On the first floor there is also the assembly line of the Ferrari Monza SP1 and SP2.

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Personalization and Road Tests
During the process of assembly of our cars we manage the fitting of all bespoke interiors, components and special equipment options that our clients choose as part of our personalization program (see “ —Sports and GT, Special Series and Icona: Ferrari Line up Strategic Pillars—Personalization Offer ”). After the assembly phase, every car completes a 40-kilometer road test-drive.
Finishing and Cleaning
After the road test all cars go to the finishing department. There, we thoroughly clean interior and exterior, check the whole car, polish and finish the bodies to give them their final appearance.
Manufacturing of Engines for Maserati
We have been producing engines for Maserati since 2003. The V8 engines that we historically produced and continue to produce for Maserati are variants of Ferrari families of engines and are mounted on Maserati’s highest performing models, such as the Quattroporte and Levante (turbo engines), and the GranTurismo and the GranCabrio (aspirated engines). All of the V8 engines that we sell to Maserati are manufactured and assembled according to the same production processes we adopt for the V8s equipped on our cars (see “ —Production Process ”). In 2019, we sold approximately 1,000 V8 turbo engines and approximately 800 V8 aspirated engines to Maserati. These were the last V8 aspirated engines to be sold to Maserati, as they have stopped the production of the GranTurismo and GranCabrio.
In 2011 we began producing a family of engines exclusively for Maserati, in much larger production volumes to be installed on the Quattroporte and Ghibli (mainly the F160 3.0-liter V6 Turbo engines), and in 2016 we started the production of F161 engines to be installed on the Levante, Maserati’s SUV. We have a multi-year arrangement with Maserati to provide V6 engines, up to 2020. Under the framework agreement, Maserati is required to compensate us for certain costs we may incur, such as penalties from our suppliers, if there is a shortfall in the annual volume of engines actually purchased by Maserati in that year. In 2019, we sold approximately 14,000 V6 engines to Maserati in four different versions, ranging from 330 hp to 450 hp.
In order to meet the V6 volumes and specifications requirements, in 2012 we built a dedicated assembly facility at Maranello with a much higher level of industrialization compared to production of our V12 engines. Due to the larger volumes and product specifications, our make-or-buy strategy for the production of F160 V6 and F161 V6 engines also differs from the strategy applicable to the production of Ferrari engines. The vast majority of the engine components are sourced externally from our panel of suppliers (see “ —Procurement ”) and then assembled in Maranello on our highly automated V6 assembly line.
Procurement
We source a variety of components, raw materials, supplies, utilities, logistics and other services from numerous suppliers. We recognize the contribution of our suppliers to our success in pursuing excellence in terms of luxury and performance, therefore we carefully select suppliers that are able to meet our high standards.
For the sourcing of certain key components with highly technological specifications, we have developed strongly synergic relationships with some of our suppliers, which we consider “key strategic innovation partners”. We currently rely on several key strategic innovation partners, including for the supply of transmissions and brakes. We have also developed strong relationships with other industrial partners for bodyworks and chassis manufacturing and for powertrain and transmissions, among other things. Pursuant to our make-or-buy strategy, we generally retain production in-house whenever we have an interest in preserving or developing technological know-how or when we believe that outsourcing would impair the efficiency and flexibility of our production process. Therefore, we continue to invest in the skills and processes required for low-volume production of components that we believe improve product quality.
For the year ended December 31, 2019, the purchases from our ten largest suppliers by value accounted for approximately 20 percent of total procurement costs, and no supplier accounted for more than 10 percent of our total procurement costs.

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Sales and After-Sales
Our commercial team, which includes approximately 400 employees at December 31, 2019 , is organized in four geographic areas covering our principal regional end markets: (i) EMEA, which is also responsible for South Africa and India, (ii) Americas, (iii) Mainland China, Hong Kong and Taiwan, and (iv) Rest of APAC (which includes the rest of Asia and Oceania).
Dealer network
We sell our cars exclusively through a network of authorized dealers (with the exception of one-offs and track cars which we sell directly to end clients). In our larger markets we act as importer either through wholly owned subsidiaries or, in China, through a subsidiary partly owned by a local partner, and we sell the cars to dealers for resale to end clients. In smaller markets we generally sell the cars to a single importer/dealer. We regularly assess the composition of our dealer network in order to maintain the highest level of quality. At December 31, 2019 , our network comprised 166 dealers operating 187 points of sale.
We do not presently own dealerships and, while our strategy does not contemplate owning dealerships, we retain flexibility to adapt to evolving market requirements over time.

We believe that our careful and strict selection of the dealers that sell our cars is a key factor for promoting the integrity and success of our brand. Our selection criteria are based on the candidates’ reputation, financial stability and proven track records. We are also intent on selecting dealers who are able to provide a purchase and after-sales experience aimed at exceeding our clients’ high expectations. Furthermore, our dealers are committed to promote and market our cars in a manner intended to preserve the Ferrari brand integrity and to ensure the highest level of client satisfaction.
While dealers may hold multiple franchises, we enjoy a high degree of prominence and level of representation at each point of sale, where most of the client interface and retail experience is exclusive to Ferrari. Our network and business development team works with all dealers to ensure our operating standards are met. Our rigorous design, layout and corporate identity guidelines guarantee uniformity of the Ferrari image and client interface. Through our in-house Ferrari Academy we provide training to dealers for sales, after-sales and technical activities. This ensures that our dealer network delivers a consistent level of market leading standards across diverse cultural environments. We train and monitor dealers intensively. We collect and observe data relating to their profitability and financial health in order to prevent or mitigate any adverse experience for clients arising from a dealer ceasing to do business or experiencing financial difficulties. Our regional representatives visit dealerships regularly to monitor and measure performance and compliance with our operating standards. We have the right to terminate dealer relationships in a variety of circumstances, including failure to meet performance or financial standards, or failure to comply with our guidelines. Dealer turnover is relatively low, reflecting the strength of the franchise and our selection processes, but is sufficient to guarantee an orderly renewal over time and to stimulate the network’s health and performance.
We provide a suggested retail price or a maximum retail price for all of our cars, but each dealer is free to negotiate different prices with clients and to provide financing. Although many of our clients in certain markets purchase our cars from dealers without financing, we provide direct or indirect finance and leasing services to retail clients and to dealers. (See “— Financial Services ”).

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The total number of our dealers as well as their geographical distribution tends to closely reflect the development or expected development of sales volumes to end clients in our various markets over time. The chart below sets forth the geographic distribution of our 187 points of sale at December 31, 2019:
capture.jpg
Our sales are diversified across our dealer network, with the largest dealer representing approximately 2.5 percent of sales, and our 15 largest dealers representing 22.5 percent of sales.
As part of our supply and demand management, we determine allocations based on various metrics including expected developments in the relevant market, the number of cars sold historically by the various dealers, current order book of dealers and the average waiting time of the end client in the relevant market. Our order reporting system allows us to collect and monitor information regarding end client orders and is able to assist us in production planning, allocation and dealer management.
Parts
We supply parts for current and older models of Ferrari to our authorized dealer network.     In addition to substitution of spare parts during the life of the car, sales are driven by clients’ demand for parts to customize their cars and maximize performance, particularly after a change in ownership and to compete in the Ferrari Challenge and other client races. We also supply parts to Ferrari models currently out of production, with stocks dating back to 1995. The stock of parts for even older models is currently owned and managed by a third party which in some cases also manufactures out-of-stock parts based on our design. The sale of parts is a profitable component of our product mix and it is expected to benefit from the increase in the number of Ferrari cars in circulation.
After-sales
Dealers provide after-sales services to clients, either at facilities adjacent to showrooms, or in stand-alone service points across 230 facilities worldwide. After-sales activities are very important for our business to ensure the client’s continued enjoyment of the car and the experience. Therefore, we enforce a strict quality control on our dealers’ services activities and we provide continued training and support to the dealers’ service personnel. This includes our team of “flying doctors,” Ferrari engineers who regularly travel to service centers to address difficult technical issues for our clients.
We sell cars together with a scheduled program of recommended maintenance services in order to ensure that these cars are maintained to the highest standards to meet our strict requirements for performance and safety.
Our 7 Year Maintenance Program (free of charge for customers since 2011 on any new cars) is offered to further strengthen customer retention in the official network and has been coupled with the possibility to extend the statutory warranty term of our standard warranty terms through the Power warranty coverage program up to the 15 th year of life of the car.

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After the 7 th year of life, a car (if in perfect maintenance condition) can be included in the Main Power warranty coverage program (Maintenance and Power) through to the car’s 15 th year of life. Between the 10 th year of life and the Classiche eligibility (20 year old car) Ferrari provides its customers, in addition to standard maintenance items, also certain specific maintenance kits (Ferrari Premium) to preserve car performance and safety systems. When a car follows the full maintenance program up to the 20 th year of life, it automatically obtains the Ferrari Classiche certification.
While we do not have any direct involvement in pre-owned car sales, we seek to support a healthy secondary market in order to promote the value of our brand, benefit our clients and facilitate sales of new cars. Our dealers provide an inspection service for clients seeking to sell their car which involves detailed checks on the car and a certification on which the client can rely, covering, among other things, the authenticity of the car, the conformity to original technical specifications, and the state of repair. Furthermore, we offer owners of classic Ferrari cars maintenance and restoration services through the 73 “Officina Ferrari Classiche” workshops, part of our service network.
In addition, owners of our classic cars can seek assistance in car and engine restorations at our Ferrari Classiche department in Maranello.

Client Relations
Our clients are the backbone of our business together with our brand and our technology. We do not promote our brand or our cars through general advertising. Our main brand marketing and promotional activities have two principal targets.
Firstly, we target the general public. Our most significant effort in this respect is centered on our racing activities and the resonance of Scuderia Ferrari (see “ —Formula 1 Activities ”). We also engage in other brand-promotional activities, including participation in motor shows and other public events.
Secondly, we target existing and prospective clients, seeking to promote clients’ knowledge of our products, and their enjoyment of our cars both on road and on track, and to foster long-term relationships with our clients, which is key to our success. In 2019, more than 70 percent of our new cars were sold to Ferrari owners.
By purchasing our cars, clients become part of a select community sharing a primary association with the Ferrari image and we foster this sense of fellowship with a number of initiatives. We strive to maximize the experience of our clients throughout their period of interaction with Ferrari - from first contact, through purchasing decision process, to waiting-time management and ownership.
During the fourth quarter of 2019, we launched the MyFerrari App, an app created to enhance our clients’ connection to the Ferrari world through the direct distribution of tailored content. This new channel enables clients to directly access features and services, expanding their relationship with both the brand and their preferred official Ferrari dealer.
Client events
We organize a number of client events in Maranello as well as other locations.

Our factory in Maranello is the core of our client engagement strategy and a symbolic hub attracting clients and prospects worldwide. Upon invitation, clients and prospects can visit the factory, witness some of its workings and experience several Ferrari core values such as heritage, exclusivity and customization. At the factory, clients also have the opportunity to configure their cars through our personalization and bespoke program (see “ —Sports and GT Range, Special Series and Icona: Ferrari Line-Up Strategic Pillars—Personalization Offer ”).

Every new model launch is carefully staged and selected clients and prospects have preferential access to the new car. The new model presentation begins with the release of images providing a preliminary view of its design. Clients are then invited to a preview or world premiere. A public model presentation generally follows at motor shows where clients are provided access to the Ferrari stand. Further country and regional events follow before delivery of the first cars to dealers.

In May 2019, clients from all over the world were invited to the world premiere of our first series production Plug-in Hybrid Electric Vehicle (PHEV) - the SF90 Stradale - with a presentation and gala dinner hosted at the Fiorano race circuit.


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In September 2019, Ferrari launched “Universo Ferrari” exhibition, the first ever immersive exhibition dedicated to the world of Ferrari, set in a dedicated location overlooking the Fiorano Circuit. This new event format hosted the premieres of two new Spider models - the 812 GTS and F8 Spider, and had over 14,000 attendees including clients, prospective clients, and fans.
In November 2019, clients were invited to the Stadio dei Marmi in Rome for the world premiere of the new Ferrari Roma, an event in the “La Nuova Dolce Vita” spirit of the new luxury model.

Driving events
Driving events serve the dual objective of allowing clients to enjoy the best emotions of driving a Ferrari, and to foster client loyalty and repeat purchases by creating enhanced opportunities to experience new Ferrari cars. The Ferrari community is a passionate group supported by a wide array of experiences tailored to the dreams of modern car owners, classic car connoisseurs, and racetrack enthusiasts.
We see nurturing our clients’ passion for driving as a key asset for our future commercial success, particularly in markets where racing traditions are less pronounced. We offer to our prospective and existing clients interested in new Ferrari models our Esperienza Ferrari program, which consists of driving sessions with a team of highly qualified and skilled Ferrari instructors and technicians. In addition we also offer to our clients on-track driving courses ( Corso Pilota ), catering to different levels of skill and experience and teaching essential driving skills for high performance cars. In our newer markets, such as China, we also offer complimentary driving courses on-track to any new car buyer.
In addition to on-track racing, we organize various on-the-road driving events, both under proprietary formats ( Ferrari Cavalcade, including the Cavalcade Classiche and the International Edition ) and with our own branded presence within established driving events. For example, in the Ferrari Tribute to Mille Miglia and the Ferrari Tribute to Targa Florio modern Ferrari cars take part in their own dedicated competition before the start of the main racing events.
Another exclusive driving experience was initiated in October 2019, led by experts of the Ferrari Classiche Academy, and aimed at classic car enthusiasts and clients interested in learning more about Ferrari’s Classiche certification program and the storied archives at our Officine Classiche restoration department. The initiative also offers the opportunity to experience on-track driving of these celebrated models on our own Fiorano race circuit.
GT Racing activities
In addition to several track day activities, organized by local sales departments and dealers to allow clients to enjoy their cars on ad-hoc rented tracks, Ferrari has a central department responsible for professionally organizing races and racing courses, Corse Clienti. The Corse Clienti activities take place on some of the world’s most famous race tracks, and include both competitive races, such as the Ferrari Challenge Championships (Europe, UK, North America and the Asia-Pacific series), and non-competitive events, such as with XX Programme and F1Clienti activities, dedicated to clients who own respectively, non-homologated GT laboratory cars and F1 single-seaters previously used by the Scuderia Ferrari in the Formula 1 Championship. Ferrari Challenge and XX Programme/F1 Clienti events are run together in the so-called Ferrari Racing Days , which are open to the public and intended for a wider audience, and in 2019 were held in Laguna Seca, Shanghai and Nurburgring.
These track activities reach their climax at the Finali Mondiali, an annual gathering of all Ferrari client racing programs under Corse Clienti, which last year took place from October 24 to 27 at the Mugello Circuit to celebrate the winners of the Challenge Series. The new Ferrari 488 Challenge EVO and 488 GT3 EVO were unveiled to our sporting customers from all over the world, while over the weekend 43,000 spectators in the stands were treated to the traditional Ferrari Show, with the 488 GTE celebrating 70 years of Ferrari victories at Le Mans, and the F60 celebrating the 90th anniversary of Scuderia Ferrari.
During the 2019 season, the Competizioni GT department supported both the Ferrari 488 GTE and the Ferrari GT3 cars that competed in the most important international championships. The 488 GTE, with a team composed of Alessandro Pier Guidi, James Calado and Daniel Serra, won the Le Mans 24 Hours competition in the WEC, and the same team also won the Petit Le Mans competition, the last round of the IMSA series. The 488 GT3, gave clear proof of its exceptional competitiveness and reliability, allowing Ferrari to grow its impressive record of victories, with 285 since its debut and 67 titles across various international series. In 2019 the new program, Club Competizioni GT , was successfully launched. The initiative is aimed at bringing back to the track the most beautiful Ferrari GT racing cars of the last 30 years and is dedicated to clients who love on-track racing and wish to unleash their cars’ maximum potential, without short, time-constrained testing sessions and outside of competitive race settings.

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Ferrari Classiche
The Ferrari Classiche department aims to provide Ferrari customers with a point of reference for managing their historic Ferrari vehicles with the objective of keeping as many of these classic cars on the road as possible. Services include the certification of the authenticity of classic Ferrari cars and vehicles of particular historical relevance, the management of Ferrari restoration and repair activities, as well as the management of Ferrari spare parts, including when these are no longer available on the market. The department also provides advice on repair operations carried out on Ferrari Classiche cars within its network.
Ferrari Classiche aims to create a platform of information and technical expertise to preserve and enhance over time the awareness and value of Ferrari’s heritage and brand. We view the surviving Ferrari vehicles of historical value as the tangible legacy and incarnation of our brand. The Ferrari Classiche department also supports and encourages the direct participation of clients in strategic historical events.
The Ferrari Classiche department in Maranello consists of an office of specialists and a workshop in which historic cars are restored and repaired. In addition, in order to provide an enhanced service to owners away from the proximity of the main workshop in Maranello, starting in 2017 Ferrari Classiche authorized a new service network with 73 “Officina Ferrari Classiche” workshops to date, primarily for vehicle repairs and the certifications’ inspections or revalidation, and the network is expected to expand in future periods.
The originality of the car with respect to the initial specifications is checked via a technical inspection, performed either at the Ferrari Classiche facility in Maranello or at an authorized Officina Ferrari Classiche, and benefits from a comprehensive archive containing drawings of each of the individual chassis and details of historical components. Based on the evidence gathered during this inspection, the car is then presented to an expert committee, chaired by the founder’s son, Piero Ferrari, for the certification.
At the Maranello workshop, Ferrari Classiche carries out full restorations using either original components and spare parts or replicas manufactured in accordance with the original specifications. Our service offers our clients the opportunity to restore any classic Ferrari to its original pristine conditions.
The Ferrari Classiche department also provides basic technical and instructional support to the Ferrari Classiche Academy, a new driving school project that launched in 2019 for vintage Ferrari cars, including the Ferrari 308 and 550 Maranello.

Formula 1 Activities
Participation in the Formula 1 World Championship with Scuderia Ferrari is the core element of our marketing effort and an important source of technological innovation for the engineering, development and production of our sports, GT and special series cars. The Formula 1 World Championship is the pinnacle of motorsports with a total global TV cumulative audience of 1.922 billion in 2019, the highest number since 2012, which represents an increase of 9% compared to 2018. In terms of unique television viewers, during 2019 the sport remained stable in the top 20 markets* at approximately 405.5 million (+0.3 percent) ( Source: Formula 1 Press Office ).
In 2019 the number of users across Formula 1’s social media platforms again grew significantly, with the total number of followers on Facebook, Twitter, Instagram and YouTube reaching 24.9m (+32.9 percent compared to 2018). Again in 2019, Formula 1’s social media channels were the fastest growing of all major sports leagues in the world.
Formula 1 cars rely on advanced technology, powerful hybrid engines and cutting edge aerodynamics. While Europe is the sport’s traditional base, longstanding non-European venues such as Australia, Brazil, Canada, Japan, Mexico and the United States have recently been joined by racing venues in China, Bahrain, United Arab Emirates, Singapore and Azerbaijan. A new venue in Vietnam has been launched in 2020, while the Dutch Grand Prix has returned after several decades. This provides participants in the Formula 1 World Championship exceptional visibility on the world stage.



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(*)     Top 20 markets are, in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdom and United States.

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Scuderia Ferrari has been racing in the Formula 1 World Championship since the series was launched in 1950, and won its first Grand Prix in 1951. We are the only team that has competed in each season since launch and the oldest and most successful in the history of Formula 1, with 238 Grand Prix wins. Throughout our racing history, we have won 15 Drivers’ Championships and 16 Constructors’ Championships, more than any other team. Many of the best known drivers in the sport’s history have raced in Scuderia Ferrari’s distinctive red cars including Alberto Ascari, Juan-Manuel Fangio, Mike Hawthorn, Phil Hill, John Surtees, Niki Lauda, Jody Scheckter, Gilles Villeneuve, Michael Schumacher and Kimi Raikkonen. Our drivers’ line-up in 2019 comprised four-time World Champion Sebastian Vettel, who joined Ferrari at the beginning of 2015, and Charles Leclerc, the first graduate of the Ferrari Driver Academy training scheme to race for our Formula 1 race team.
For Scuderia Ferrari, 2019 was very much a year of reorganization, with many team members taking on new roles, including Mattia Binotto, who stepped up to the role of Team Principal, and one half of the driver line-up was renewed. During the past season, Scuderia Ferrari achieved three wins, nine pole positions, 19 podiums and 504 points. Its drivers led for a total of 406 laps, approximately a third of the total number of race laps over the entire season, and the team finished second in the Constructors’ Championship.
Participation in the Formula 1 World Championship is regulated by bilateral Team Agreements entered into between Formula 1 World Championship Limited (FOWC), Formula 1's commercial rights holder, and each competing Formula 1 racing team (including Scuderia Ferrari) and by regulations issued by the Federation Internationale de l’Automobile (FIA), the motorsport’s governing body.
The Team Agreements cover the 2013-2020 racing seasons and govern the terms by which the racing teams take their share of commercial profits. The FIA sets both the sporting and technical regulations for the competitions. In return for their participation in Formula 1 races the teams receive a share of a prize fund based on the profits earned from Formula 1 related commercial activities managed by FOWC, including in particular, television broadcasting royalties and other sources. Shares in the prize fund are paid to the teams, largely based on the relative ranking of each team in the championship. We use our share of these payments to defray part of the costs associated with Scuderia Ferrari, including the costs of designing and producing the race cars each year and the costs associated with managing a racing team including the salaries of the drivers, who are typically among the most highly paid athletes in the world. New regulations were introduced in 2019, relating to aerodynamics, drivers’ weight, fuel allowance and the requirement for drivers to wear biometric gloves for additional safety. The discussions to establish the sport's regulations which will apply from 2021 onwards continued during 2019. The new rules were approved by the World Council on October 31, 2019, with the understanding that they will be subject to further discussions between F1, the FIA and the teams over the coming months, which may lead to further changes between now and 2021. Please see “Item 3.D. Risk Factors—Our revenues from Formula 1 activities may decline and our related expenses may grow ”.

Improvements in technology and, from time to time, changes in regulation require the design and production of a new racing car every year. Therefore, in addition to our long-term research and development efforts, we begin designing our cars each year in the Spring, in anticipation of the start of the racing season the following March. While the chassis we build each year are designed to be used throughout the racing season, the majority of other components fitted on our cars are adjusted from race to race depending on the characteristics of the circuits.
To maximize the performance, efficiency and safety of our Formula 1 cars, while complying with the strict technical rules and restrictions set out by the FIA, our research and development team plays a key role in the development of our road cars and their engines. We often transfer technologies initially developed for racing to our road cars. Examples include steering wheel paddles for gear-shifting, the use and development of composite materials, which makes cars lighter and faster, and technology related to hybrid propulsion.
Our road cars (especially our sports car models) have benefited from the know-how acquired in the wind tunnel by our racing car development teams, enjoying greater stability as they reach high speeds on and off the track. Our research and development team focused on combining minimal lap times with maximum efficiency, leading to advances in kinetic energy recovery system, or ERS, technology. Current advanced ERS feature two electric motor/generator units in every car, which allow the car to recover, store and deploy energy generated both by the vehicle during braking and by the exhaust gases through a turbocharger.
The high brand visibility we achieve through participation in the Formula 1 World Championship has historically enabled us to benefit from significant sponsorship. Philip Morris International has been Scuderia Ferrari’s partner for over forty years and currently remains our Title Partner. Starting from October 2018, the “Mission Winnow” logo has appeared on the cars’ livery and drivers’ overalls. Mission Winnow is a Philip Morris International global campaign aimed at driving change by constantly searching for better ways of doing things. Shell has also been a long term Sponsor and Technical Partner of Scuderia Ferrari (supporting the team continuously since 1996). The other partners of the Team are divided into three different categories

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(Sponsor, Official Supplier and Supplier) and include Ray-Ban, Kaspersky lab, UPS, Lenovo, Weichai, Mahle, Hublot, AMD, OMR and Alfa Romeo among others. Visibility and placement of a sponsor’s logo reflects the level of sponsorship fees. Historically, our sponsors have sought advertising opportunities on the chassis of our cars, on clothes worn by our team members and drivers, and in the right to associate their brand to Ferrari in their marketing activities and communications.
We use the platform provided by Formula 1 for a number of associated marketing initiatives, such as the hosting of clients and other key partners in Ferrari Formula 1 Club Hospitality to watch and experience the Grand Prix races with Scuderia Ferrari, and our Formula 1 drivers’ participation in various promotional activities for our road cars. We often sell older Formula 1 cars to customers for use in amateur racing or collection.
More generally, Formula 1 racing allows us to promote and market our brand and technology to a global audience without resorting to traditional advertising activities, therefore preserving the aura of exclusivity around our brand and limiting the marketing costs that we, as a company operating in the luxury industry, would otherwise incur.
The Mugello Circuit
We acquired the international Mugello circuit in Scarperia, near Florence, in 1988. We have renovated its buildings, 5.2 km race track and other testing and racing facilities, making Mugello what we believe to be one of the world’s finest circuits of its type, with FIA Grade 1 and FIM Grade A certifications, the highest level of homologation for a racetrack.
We promote the Mugello circuit to event organizers who regularly rent the circuit to host leading car and motorbike races, including the MotoGP World Championship since 1992. In 2019, the circuit hosted 16 race weekends and 250 days of track activities. Almost 121,000 spectators attended the 2019 MotoGP World Championship (71,000 on the Sunday), one of the largest audiences ever recorded in the 29 years of the Mugello circuit’s history.
In 2011, the Mugello circuit won its fifth “Best Grand Prix” award, the highest honor given in the motor sport world to MotoGP organizers. The Mugello circuit is the only track race to have received this award five times.

Brand Activities
Ferrari is one of the world’s leading luxury brands. We engage in brand development and protection activities through licensing contracts with selected partners, retail activities through a chain of franchised or directly managed stores, licensed theme parks and the development of a line of apparel and accessories sold exclusively in our monobrand stores and on our website www.store.ferrari.com .
Ferrari owns and manages two museums, one in Maranello and one in Modena, which attracted more than 600,000 visitors in 2019.
Licensing, Entertainment and Theme Parks
We enter into license agreements with a number of licensees for the design, development and production of Ferrari branded products.
We carefully select our licensees through a rigorous process and we contractually seek to ensure that our brand and intellectual property are protected and that the products which will eventually bear our brand are of adequate quality, appearance and market positioning. Ferrari branded products include consumer electronics, sportswear, toys, video games, watches and other accessories, as well as theme parks.
In 2019, we commenced our participation in eSports ( i.e. , electronic sports) with the launch of an entertainment platform and the selection of a team which took part in two of the main world championships: F1 Pro Series 2019 and SRO E-Sport GT Series, which our team won.

A significant portion of our revenues from licensing activities consists of royalties we receive in connection with Ferrari World, our theme park in Abu Dhabi. Ferrari World opened on Yas Island, on the North East side of Abu Dhabi’s mainland, in 2010. Ferrari World’s iconic sleek red roof is directly inspired by the classic double curve side profile of the Ferrari GT body, spanning 200,000 square meters and carrying the largest Ferrari logo ever created. Ferrari World Abu Dhabi offers an all-around Ferrari experience to children and adults alike.

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Our second theme park, Ferrari Land Portaventura, opened in April 2017 near Barcelona, and includes Red Force, the tallest and fastest roller-coaster in Europe. In the long-term we aim to open one theme park in each of the main geographic areas where we operate, including North America and Asia.
Retail
Through our network of stores (franchised or directly managed), we offer a wide range of Scuderia Ferrari branded products, including a line of apparel and accessories exclusively sold in our stores and on our website. All products sold in our stores and on our website are either directly sourced from our selected network of suppliers or manufactured by our licensees.
As at December 31, 2019 , there were a total of 44 retail Ferrari stores, including those in Maranello, Milan, Rome, Macau, Miami, Los Angeles, Johannesburg, Dubai and Abu Dhabi, of which 24 are franchised stores (including 15 Ferrari Store Junior) and 20 stores owned and operated by us.
We require all franchisees to operate our monobrand stores according to our standards. Stores are designed, decorated, furnished and stocked according to our directions and specifications.
We use multiple criteria to select our franchisees, including know-how, financial condition, sales network and market access. Generally, we require that applicants meet certain minimum working capital requirements and have the requisite business facilities and resources. We typically enter into a standard franchising agreement with our franchisees. Pursuant to this agreement, the franchisee is authorized to sell our products at a suggested retail price. In exchange, we provide them with our products, the benefit of our marketing platform and association with our corporate identity.
Brand Diversification Strategy
In November 2019, management presented the principles of its brand diversification strategy, recognizing Ferrari as a unique brand with a dual identity: exclusive, but also inclusive in relation to our F1 fan communities . To ensure long term profitable growth, Ferrari intends to focus its offering on product categories that enhance the vibrancy and vitality of the brand through the following pillars:
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“Brand Extension” pillar, a refined collection of products that will embody Ferrari’s DNA;

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“Entertainment” pillar, to reach out to a wider and younger customer base while leveraging Ferrari’s unique racing roots; and

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“Car Adjacencies” pillar, a collection of exclusive luxury products and services to complement the Ferrari experience.


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Financial Services
We offer retail client financing for the purchase of our cars and dealer financing through the operations of Ferrari Financial Services (“FFS”). We offer retail client financing:
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directly in the United States through our fully owned subsidiary Ferrari Financial Services Inc. (“FFS Inc”);
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through our associate Ferrari Financial Services GmbH in certain markets in EMEA (primarily the UK, Germany and Switzerland); and
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through various partnerships in other European countries and other major international markets, such as Japan and Australia.
We also offer direct dealer financing in the United States through FFS Inc.
Through FFS, we offer a range of flexible, bespoke financial and ancillary services to clients (both current and new) interested in purchasing a wide range of cars, from our current product range of sports, GT and special series cars, to older pre-owned and classic models. FFS also provides special financing arrangements to a selected group of our most valuable and loyal customers.
Starting in 2016, FFS Inc has pursued a strategy of autonomous financing for our financial services activities in the United States, further reducing dependency on intercompany funding and increasing the portion of self-liquidating debt with various securitization transactions.
At December 31, 2019 , the consolidated financial services portfolio was €966 million and originated in the United States.


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Intellectual Property
We own a number of registered designs and utility patents. We expect the number to grow as we continue to pursue technological innovations and to develop our design and brand activities.
We file patent applications in Europe, and around the world (including in the United States) to protect technology and improvements considered important to our business. No single patent is material to our business as a whole.
We also own a number of registered trademarks, designs and patents, including approximately 493 trademarks (word or figurative), registered in several countries and across a number classes. In particular, we ensure that the maximum level of protection is given to the following iconic trademarks, for which we own approximately 4,000 applications/registrations in approximately 140 countries, in most of the main classes for goods and services:
• “Ferrari” (word)
• “Ferrari” logotype:
wordlogoa26.jpg
• the “Prancing Horse” (figurative):
prancinghorsea25.jpg
• the trademark (figurative):
logocoverpagea25.jpg
• the racing shield (figurative):

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cresta25.jpg
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Scuderia Ferrari (word and figurative):
scuderiaferrarilogoa27.jpg
The names of our sports, GT, special series and Icona car models and Formula 1 single-seater models are also registered as trademarks (and logotypes) and we also register their domain names and the cars’ design.
The protection of intellectual property is also increasingly important in connection with our design and brand activities. Therefore, we adopt and follow internal processes and procedures to ensure both that all necessary protection is given to our intellectual property rights and that no third party rights are infringed by us. In addition, we are particularly active in seeking to limit any counterfeiting activities regarding our Ferrari branded products around the world. To reach this goal we closely monitor trademark applications and domain names worldwide, actively interact with national and local authorities and customs and avail ourselves of a network of experienced outside counsels.

Regulatory Matters
We manufacture and sell our cars around the world and our operations are therefore subject to a variety of laws and regulations relating to environmental, health and safety and other matters. These laws regulate our cars, including their emissions, fuel consumption and safety, as well as our manufacturing facilities and operations, setting strict requirements on emissions, treatment and disposal of waste, water and hazardous materials and prohibitions on environmental contamination. Our vehicles, together with the engines that power them, must comply with extensive regional, national and local laws and regulations, and industry self-regulations (including those that regulate vehicle safety). However, we currently benefit from certain regulatory exemptions, because we qualify as an SVM or similar designation in certain jurisdictions where we sell cars. As outlined below, these exemptions provide a range of benefits, from less stringent emissions caps and compliance date extensions, to exemptions from zero emission vehicle production requirements.
We are in substantial compliance with the relevant regulatory requirements affecting our facilities and products around the world. We constantly monitor such requirements and adjust our operations as necessary to remain in compliance.

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Approval and market surveillance
In May 2018 the European Parliament and European Council issued Regulation 2018/858, establishing the new framework for the approval and market surveillance of motor vehicles (repealing Directive 2007/46/EC). While the previous regulatory framework of Directive 2007/46/EC was focused on technical standards, the new regulation has a broader scope by including market surveillance requirements in order to ensure the enforcement of applicable standards. The key objectives of Regulation 2018/858 are: enhancing the independence of technical services (i.e. the approved testing laboratories) as well as improving the quality of the testing of vehicles and setting stricter requirements for technical services; introducing market surveillance in order to verify the conformity of vehicles on the market to the applicable standards, and requiring corrective measures in case of non-compliance or where a vehicle poses a safety risk or a risk to the environment; strengthening the type approval system with more stringent oversight by the EU. The Commission has the power to suspend, restrict or withdraw the designation of technical services, to order recalls, and to impose financial penalties.
Greenhouse gas/CO 2 /fuel economy legislation
Current European legislation limits fleet average greenhouse gas emissions for new passenger cars to 130 grams of CO 2 per kilometer. Due to our SVM status under EU regulations we benefit from a derogation from the 130 grams per kilometer emissions requirement available to small volume and niche manufacturers. Pursuant to that derogation, we were instead required to meet yearly CO 2 emissions targets, beginning in 2012, reaching a target level of 290 grams per kilometer in 2016 for our fleet of EU-registered vehicles that year. Despite global shipments exceeding 10,000 vehicles in 2019, Ferrari continues to qualify as an SVM under EU regulations, because its total number of registered vehicles in the EU per year is less than 10,000 vehicles.
In 2014, the European Union set new 2020 emissions targets, calling for 95 percent of a manufacturer’s full fleet of new passenger cars registered in the EU in 2020 to average 95 grams of CO 2 per kilometer, rising to 100 percent of the fleet in 2021. The 2014 regulation extends the small volume and niche manufacturers derogation. Pursuant to the derogation approved by the European Commission following our petition, we are required to meet certain CO2 emissions target levels in the 2017-2021 period, reaching a target of 277 grams per kilometer in 2021 for our fleet of EU-registered cars that year.
In 2019, the European Union set new 2025 and 2030 emissions targets, calling for respectively a 15% and 37.5% reduction of the target in 2021. An incentive mechanism for zero and low emission vehicles was also introduced. This new regulation (EU 2019/631) continues to state that it is not appropriate to use the same method to determine the emissions reduction targets for large volume manufacturers as for small volume manufacturers that are considered as independent. Therefore, SVMs have the possibility to continue to apply for alternative emissions reduction and are required to submit the application at the latest by 31 October of the first year in which the derogation shall apply.
The regulation 2019/631 sets out new EU rules on monitoring and reporting of average emissions: the Commission will have to ensure the real-world representativeness of the CO2 emission values based on data from the fuel consumption meters installed in new cars and will be obliged to publish the performance of each manufacturer. In addition, the Commission will have to evaluate the possibility of a common methodology for the assessment and the consistent data reporting of full life-cycle emissions from cars. The regulation provides also specific provisions on in-service conformity testing and on detecting strategies which may artificially improve the CO2 performance.
In the United States, both Corporate Average Fuel Economy (“CAFE”) standards and greenhouse gas emissions (“GHG”) standards are imposed on manufacturers of passenger cars. Because the control of fuel economy is closely correlated with the control of GHG emissions, the United States Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) have sought to harmonize fuel economy regulations with the regulation of GHG vehicle emissions (primarily CO 2 ). These agencies have set the federal standards for passenger cars and light trucks to meet an estimated combined average fuel economy (CAFE) level that is equivalent to 35.5 miles per U.S. gallon for 2016 model year vehicles (250 grams CO 2 per mile). In August 2012, these agencies extended this program to cars and light trucks for model years 2017 through 2025, targeting an estimated combined average emissions level of 163 grams per mile in 2025, which is equivalent to 54.5 miles per gallon.
In August 2018 the NHTSA and the EPA issued a common proposal, the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for model years 2021-2026 Passenger Cars and Light Trucks” (SAFE Vehicles Rule). The SAFE Vehicles Rule, if finalized, would amend certain existing CAFE and tailpipe carbon dioxide emissions standards for passenger cars and light trucks and establish new standards, all covering model years 2021 through 2026. More specifically, NHTSA is proposing new CAFE standards for model years 2022 through 2026 and amending its 2021 model year CAFE standards because they are no longer deemed to be maximum feasible standards, and EPA is proposing to amend its carbon dioxide emissions standards for model years 2021 through 2025 because they are no longer deemed appropriate and reasonable in addition to establishing new

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standards for model year 2026. The authorities’ stated preferred alternative is to retain the model year 2020 standards (specifically, the footprint target curves for passenger cars and light trucks) for both programs through model year 2026, but comment has been sought on a range of alternatives. The SAFE Vehicles Rule has not been adopted in final form as of the date of this filing.
On September 27, 2019 EPA and NHTSA issued the “Safer Affordable Fuel-Efficient Vehicles Rule Part One: One National Program” 84 Fed. Reg. 51310. These rules would exert federal preemption authority under the CAFE statute over California’s ability to regulate greenhouse gases and would revoke the current EPA waiver under the Clean Air Act which had authorized California to regulate GHG from motor vehicles. The state of California along with other states and certain NGOs filed challenges to these rules in both US District Court for the District of Columbia and the United States Court of Appeals D.C. Circuit. The litigation is pending and the impact on Ferrari of the rule and the challenges cannot be determined until the conclusion of the litigation.
Under current regulation, for model years 2017-2025, the EPA allows a SVM, defined as manufacturer with less than 5,000 yearly unit sales in the United States, to petition for a less stringent standard. The EPA has granted us SVM status. We have therefore petitioned the EPA for alternative standards for the model years 2017-2021 and 2022-2025, which are aligned to our technical and economic capabilities. On July 31, 2019 EPA published a Notice in the U.S. Federal Register (Federal Register /Vol. 84, No. 147) that in part proposed that Ferrari be permitted an alternative standard substantially in line with the alternative standard that Ferrari proposed to EPA for model years 2017-2021. EPA approved Ferrari proposed standards for model years 2017-2020, whereas it requires a small reduction of the model year 2021 standard.
In September 2016, we petitioned NHTSA for recognition as an independent manufacturer of less than 10,000 vehicles produced globally, and we proposed alternative CAFE standards, for model years 2017, 2018 and 2019. Then, in December, 2017, we amended the petition by proposing alternative CAFE standards for model years 2016, 2017 and 2018 instead, covering also the 2016 model year. NHTSA have not yet responded to our petition. If our petitions are rejected, we will not be able to benefit from the more favorable CAFE standards levels which we have petitioned for and this may require us to purchase additional CAFE credits in order to comply with applicable CAFE standards. Starting from 2019, we are no longer considered to be an SVM by NHTSA, because our global production exceeded 10,000 vehicles, and therefore we are required to apply Large Vehicle Manufacturer (“LVM”) standards, and consequently, to purchase further CAFE credits.
The state of California has been granted special authority under the Clean Air Act to set its own vehicle emission standards. In February 2010, the California Air Resources Board (“CARB”) enacted regulations under which manufacturers of vehicles for model years 2012-2016 which are in compliance with the EPA greenhouse gas emissions regulations are also deemed to be in compliance with California’s greenhouse gas emission regulations (the so-called “deemed to comply” provision). In November 2012, the CARB extended these rules to include model years 2017-2025. In 2017 CARB performed a technical assessment regarding greenhouse gas standards for model years 2022 through 2025, in parallel with EPA and NHTSA, and confirmed in March 2017 that the standards defined in 2012 may be still considered appropriate. The SAFE Vehicles Rule mentioned above proposes to withdraw the waiver granted to California under the Clean Air Act to establish more stringent standards for vehicle emissions that are applicable to model years 2021 through 2025. In response to the proposed California waiver withdrawal, on December 12, 2018 the CARB amended its existing regulations to clarify that the “deemed to comply” provision shall not be available for model years 2021-2025 if the EPA standards for those years are altered via an amendment of federal regulations. On September 19, 2019, the NHTSA and the EPA established the “One National Program” for fuel economy regulation, taking the first step towards finalizing the agencies’ August 2018 proposal by announcing the EPA’s decision to withdraw California’s waiver of preemption under the Clean Air Act, and by affirming the NHTSA’s authority to set nationally applicable regulatory standards under the preemption provisions of the Energy Policy and Conservation Act (EPCA). The two agencies indicated that they anticipate issuing a final rule on standards in the near future. Ferrari currently avails itself of the “deemed-to-comply” provision to comply with CARB greenhouse gas emissions regulations. Therefore, depending on future developments, it may be necessary to also petition the CARB for SVM alternative standards and to increase the number of tests to be performed in order to follow the CARB specific procedures.

While Europe and the United States lead the implementation of these fuel consumption/CO 2 emissions programs, other jurisdictions typically follow on with adoption of similar regulations within a few years thereafter. In China, for example, Stage IV targets a national average fuel consumption of 5.0L/100km by 2020. In September 2017 the Chinese government issued the Administrative Measures on CAFC (Corporate Average Fuel Consumption) and NEV (New Energy Vehicle) Credits. This regulation establishes mandatory CAFC requirements, while providing additional flexibility for SVMs (defined as a manufacturer with less than 2,000 units imported in China per year) that achieve a certain minimum CAFC yearly improvement rate. Manufactures that exceed the CAFC regulatory ceiling are required to purchase NEV credits.


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The Stage V regulation, issued on December 31, 2019, sets the fuel consumption fleet average targets for the period 2021-2025, targeting a national average fuel consumption of 4.0 l/100km by 2025. Consequently, an update of the Administrative Measures on CAFC and NEV Credits is awaited, keeping the additional flexibility for SVMs and relaxing the minimum CAFC yearly improvement rate required.

Exhaust and evaporative emissions requirements
In 2007, the European Union adopted a series of updated standards for emissions of other air pollutants from passenger and light commercial vehicles, such as nitrogen oxides, carbon monoxide, hydrocarbons and particulates. These standards were phased in from September 2009 (Euro 5) and September 2014 (Euro 6) for passenger cars. In 2016, the European Union established that Euro 6 limits shall be evaluated through Real Driving Emissions (RDE) measurement procedure and a new test-cycle more representative of normal conditions of use (Worldwide Light Vehicles Test Procedure). SVMs (vehicle manufacturers with a worldwide annual production lower than 10,000 units in the year prior to the grant of the type-approval) are required to be compliant with RDE standards starting from 2020 while non-SVMs have been required to comply with RDE standards starting from 2017. We believe all new Ferrari models are fully compliant with RDE requirements. In 2018, the European Commission issued Regulation 2018/1832 for the purpose of improving the emission type approval tests and procedures for light passenger and commercial vehicles, including those for in-service conformity and RDE and introducing devices for monitoring the consumption of fuel and electric energy. Under the EU Regulation, which became applicable in January 2019, among other things, the extended documentation package provided by manufacturers to type approval authorities to describe Auxiliary Emission Strategies (AES) is no longer required to be kept confidential, and the decision whether to allow access to such documentation package is left to national authorities. In addition, the Regulation introduced a new methodology for checking In-Service Conformity (ISC) which includes RDE tests. Compliance is tested based on ISC checks performed by the manufacturer, the granting type approval authority (GTAA), and accredited laboratories or technical services. Test results will be publicly available; in addition, the GTAA will publish annual reports on the ISC checks performed, in order to improve transparency.
On 13th of December 2018, the General Court of the European Union issued a ruling on the action started in mid-2016 by the cities of Madrid, Brussels and Paris on the legality of the Commission introducing in the second RDE Regulation (2016/646) RDE conformity factors (CF) which had the effect of increasing the emission limits. This led to the appeal proceedings during 2019 against the General Court’s judgment that annulled the conformity factors in the RDE legislation. The judgment is currently expected towards the end of 2020.
During 2019, the European Commission announced that it will propose more stringent air pollutant emissions standards for combustion-engine vehicles and indicated 2021 as a target timeline. The Commission created an Advisory Group on Vehicle Emission Standards (AGVES), by joining all the relevant expert groups working on emission legislation, in order to provide technical advice for the development of the post-EURO 6/VI emission standards for motor vehicles.
In the United States, the “Tier 3” Motor Vehicle Emission and Fuel Standards issued by the EPA were finalized in April 2014. With Tier 3, the EPA has established more stringent vehicle emission standards, requiring significant reductions in both tailpipe and evaporative emissions, including nitrogen oxides, volatile organic compounds, carbon monoxide and particulate matter. The new standards are intended to harmonize with California’s standards for 2015-2025 model years (so called “LEV3”) and will be implemented over the same timeframe as the U.S. federal CAFE and GHG standards for cars and light trucks described above. Because of our status as an operationally independent SVM, Ferrari obtained a longer, more flexible schedule for compliance with these standards under both the EPA and California Program.
In addition, California is moving forward with other stringent emission regulations for vehicles, including the Zero Emission Vehicle regulation (ZEV). The ZEV regulation requires manufacturers to increase their sales of zero emissions vehicles year on year, up to an industry average of approximately 15 percent of vehicles sold in the state by 2025. Because we currently sell fewer than 4,500 units in California, we are exempt from these requirements.
Additional stringency of evaporative emissions also requires more advanced materials and technical solutions to eliminate fuel evaporative losses, all for much longer warranty periods (up to 150,000 miles in the United States).
In response to severe air quality issues in Beijing and other major Chinese cities, in 2016 the Chinese government published a more stringent emissions program (National 6), providing two different level of stringency (6a and 6b) effective starting from 2020. In July 2018 China’s central government launched a three-year plan to reduce air pollution, extending targets for reducing lung-damaging airborne particulate pollution to the country’s 338 largest cities. This plan includes reductions in steel and other industrial capacity, reducing reliance on coal, promoting electric vehicles and cleaner transport, enhancing air-pollution warning systems, and increasing inspections of businesses for air pollution infractions. Several autonomous regions and municipalities have implemented the requirements of the National 6 program even ahead of the mandated deadlines.

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To comply with current and future environmental rules related to both fuel economy and pollutant emissions, we may have to incur substantial capital expenditure and research and development expenditure to upgrade products and manufacturing facilities, which would have an impact on our cost of production and results of operation.
Vehicle safety
Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or by individual Member States. In 2009, the EU established a simplified framework for vehicle safety, repealing more than 50 directives and replacing them with a single regulation (the “General Safety Regulation”) aimed at incorporating relevant United Nations standards. This incorporation process began in 2012. With respect to regulations on advanced safety systems, the EU now requires new model cars from 2011 onwards to have electronic stability control systems and tire pressure monitoring systems. Regulations on low-rolling resistance tires have also been introduced. The framework is reviewed periodically, and a revised version of the General Safety Regulation is currently under discussion. In May 2018, the European Commission adopted a proposal for a regulation to make certain vehicle safety measures mandatory. On March 25, 2019, the European Parliament, Council and Commission reached a provisional political agreement on the revised General Safety Regulation. As of 2022, new safety technologies will become mandatory in European vehicles, such as Advanced Emergency Braking, Emergency Lane Keeping systems, crash-test improved safety belts, intelligent speed assistance and warning of driver drowsiness or distraction. In 2017 the EU published technical requirements for the Emergency Call (eCall) system, mandatory for new model cars starting from 2018. Starting from July 1, 2019, new types of pure electric vehicle and new types of hybrid electric vehicle capable of operating without propulsion from a combustion engine operating are required to be equipped with an Acoustic Vehicle Alerting System (AVAS), and from July 1, 2021 for all new vehicles of such types, in order to alert pedestrians that a vehicle is moving at low speeds. Starting from 2022, European authorities and United Nation’s Contracting Parties will enforce Regulations on cyber security and over the air updates.
Under U.S. federal law, all vehicles sold in the United States must comply with Federal Motor Vehicle Safety Standards (“FMVSS”) promulgated by the NHTSA. Manufacturers need to provide certification that all vehicles are in compliance with those standards. In addition, if a vehicle contains a defect that is related to motor vehicle safety or does not comply with an applicable FMVSS, the manufacturer must notify vehicle owners and provide a remedy at no cost to the owner. Moreover, the Transportation Recall Enhancement, Accountability, and Documentation Act (“TREAD”) requires manufacturers to report certain information related to claims and lawsuits involving fatalities and injuries in the United States if alleged to be caused by their vehicles, and other information related to client complaints, warranty claims, and field reports in the United States, as well as information about fatalities and recalls outside the United States. Several new or amended FMVSSs have taken or will take effect during the next few years in certain instances under phase-in schedules that require only a portion of a manufacturer’s fleet to comply in the early years of the phase-in. These include an amendment to the side impact protection requirements that added several new tests and performance requirements (FMVSS No. 214), an amendment to roof crush resistance requirements (FMVSS No. 216), and a rule for ejection mitigation requirements (FMVSS No. 226). U.S. federal law also sets forth minimum sound requirements for hybrid and electric vehicles (FMVSS No. 141). Because of our status as SVM, Ferrari is required to be compliant at the end of the phase-in period.
On May 4, 2016, the NHTSA published a Consent Order Amendment (the “Amended Consent Order”) to the November 3, 2015 Takata Consent Order regarding a defect which may arise in the non-desiccated Takata passenger airbag inflators mounted on certain Ferrari cars. As a result of such Amended Consent Order, Ferrari filed a Part 573 Defect Information Report on May 23, 2016 with the NHTSA and has initiated a global recall relating to certain cars produced between 2008 and 2011. In December 2016, the NHTSA issued a Third Amendment to the Coordinated Remedy Order (“ACRO”) which included the list of Ferrari vehicles sold in the United States up to model year 2017 to be recalled. As a consequence of the ACRO, Ferrari decided to extend the Takata global recall campaign to all vehicles worldwide mounting non-desiccated Takata passenger airbag inflators. In January 2017 Ferrari, in accordance with the Amended Consent Order and the ACRO, filed with the NHTSA a Part 573 Defect Information Report to include model year 2012 Zone A vehicles. In January 2018, Ferrari, in accordance with the Amended Consent Order and the ACRO, also filed with the NHTSA a Part 573 Defect Information Report to include model year 2013 Zone A vehicles. In January 2019, Ferrari, in accordance with the Amended Consent Order and the ACRO, filed with the NHTSA a Part 573 Defect Information Report to include model year 2014 - 2018 vehicles. In January 2020, Ferrari, in accordance with the Amended Consent Order and the ACRO, filed with the NHTSA a Part 573 Defect Information Report to include vehicles that had received the so-called “like-for-like” repair. As a result of the ACRO and the decision to extend the worldwide Takata airbag inflator recall, Ferrari recognized provisions of €37 million in 2016 for the estimated charges for Takata airbag inflators recalls to cover the cost of the worldwide global Takata recall due to uncertainty of recoverability of the costs from Takata. At December 31, 2019 the provision amounted to €16 million.

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In 2016 the NHTSA published Phase II draft guidelines for driver distraction, for portable and aftermarket devices, and the associated compliance costs may be substantial. These guidelines, together with previously published Phase I provisions focus, among other things, on the need to modify the design of car devices and other driver interfaces to minimize driver distraction. Compliance with these new requirements, as well as other possible future NHTSA requirements, may be difficult and/or costly. We are in the process of evaluating these guidelines and their potential impact on our results of operations and financial position and determining what steps and/or countermeasures, if any, we will need to make. However, NHTSA rulemaking on driver distraction guidelines has not progressed since early 2017, and the announced Phase III draft on voice-activated controls has not yet been published.
In 2017 Chinese authorities published an updated version of the current local general safety standard which allows China to become the driver market for the Event Data Recorder mandatory installation starting from 2021. Technical requirements were defined in mid-2019, through the formal adoption of the local standard.Among the United Nations Contracting Parties, China has been the first country to propose an early adoption of updated test procedures on high-voltage batteries for hybrid and electric vehicles, which is expected to be enforced in 2020.

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C. Organizational Structure
Subsidiaries
The following table sets forth a list of the principal subsidiaries that are directly or indirectly controlled by Ferrari.
For each company, the following information is provided: name, country of residence, nature of business, the percentage interest held by Ferrari and its subsidiaries, and the percentage interest held by non-controlling interests at December 31, 2019 .
Subsidiaries at December 31, 2019 :
Name
Country
Nature of business
Shares held by the Group
Shares held by non-controlling interests
Directly held interests
Ferrari S.p.A.
Italy
Manufacturing
100%
—%
Indirectly held through Ferrari S.p.A.
Ferrari North America Inc.
USA
Importer and distributor
100%
—%
Ferrari Japan KK
Japan
Importer and distributor
100%
—%
Ferrari Australasia Pty Limited
Australia
Importer and distributor
100%
—%
Ferrari International Cars Trading (Shanghai) Co. L.t.d.
China
Importer and distributor
80%
20%
Ferrari (HK) Limited
Hong Kong
Importer and distributor
100%
—%
Ferrari Far East Pte Limited
Singapore
Service company
100%
—%
Ferrari Management Consulting (Shanghai) Co. L.t.d.
China
Service company
100%
—%
Ferrari South West Europe S.a.r.l.
France
Service company
100%
—%
Ferrari Central Europe GmbH (1)
Germany
Service company
100%
—%
G.S.A. S.A.
Switzerland
Service company
100%
—%
Mugello Circuit S.p.A.
Italy
Racetrack management
100%
—%
Ferrari Financial Services Inc.
USA
Financial services
100%
—%
Indirectly held through other Group entities
Ferrari Auto Securitization Transaction LLC (2)
USA
Financial services
100%
—%
Ferrari Auto Securitization Transaction - Lease, LLC (2)
USA
Financial services
100%
—%
Ferrari Financial Services Titling Trust (2)
USA
Financial services
100%
—%
Ferrari Auto Securitization Transaction - Select, LLC (2)
USA
Financial services
100%
—%
410, Park Display Inc. (3)
USA
Retail
100%
—%
___________________________
(1)
Changed its name from Ferrari Central East Europe GmbH to Ferrari Central Europe GmbH, effective December 2, 2019.
(2)
Shareholding held by Ferrari Financial Services Inc.
(3)
Shareholding held by Ferrari North America Inc.


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D. Property, Plant and Equipment
Our principal manufacturing facility is located in Maranello (Modena), Italy. It has an aggregate covered area of approximately 690 thousand square meters. Our Maranello plant hosts our corporate offices and most of the facilities we operate for the design, development and production of our sports and GT cars, as well as of our Formula 1 single-seaters. (See “Item 4.B. Business Overview—Production and Procurement—Production Process ”). Except for some leased technical equipment, we own all of our facilities and equipment in Maranello.
Since 2002 we have either rebuilt or renovated most of the buildings in Maranello, including the paint shop building and the production building. In 2015 we completed construction of the new building entirely dedicated to our Formula 1 team and racing activities, as well as the new wind tunnel 4WD.
In 2018 we completed the new Ferrari Design Centre, a building that covers more than 7.3 thousand square meters.
In 2019 we completed the office area and workshop area of the New Technical Center, covering approximately 9 thousand square meters, for the development of engines and hybrid systems. The entire building and the engine and hybrid test benches, for a total of approximately 20 thousand square meters, are expected to be completed during the course of 2020. We also purchased land of approximately 16 thousand square meters in Maranello in 2019, to be used for future developments.
Adjacent to the plant is our Fiorano track, of approximately 3,000 meters, built in 1972 and remodeled in 1996. The track also houses the Formula 1 logistics offices. Additional facilities in Maranello include a product development center, a hospitality area and the Ferrari museum.
We also own the Mugello racing circuit in Scarperia, near Florence, which we rent to racing events organizers (see “Item 4.B. Business Overview—Formula 1 Activities—The Mugello Circuit ”).
We own a second plant in Modena, named Carrozzeria Scaglietti. At this approximately 26 thousand square meter plant we manufacture aluminum bodyworks for our regular range, special series and prototype cars.
The total carrying value of our property, plant and equipment at December 31, 2019 was €1,070 million .
For information on our principal expenditures on property, plants and equipment, see “Item 5.B Liquidity and Capital Resources—Capital Expenditures—Property, plant and equipment ”.

Item 4A. Unresolved Staff Comments
Not applicable.

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Item 5. Operating and Financial Review and Prospects
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE GROUP
The following discussion of our financial condition and results of operations should be read together with the information included under “ Item 3.A. Selected Financial Data ”, “ Item 4. Information on the Company ” and the Consolidated Financial Statements included elsewhere in this document. This discussion includes forward-looking statements, and involves numerous risks and uncertainties, including, but not limited to, those described under “ Forward-Looking Statements ” and the “ Item 3.D. Risk Factors ”. Actual results may differ materially from those contained in any forward-looking statements.

Overview
Ferrari is among the world’s leading luxury brands, focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 Constructor World titles and 15 Drivers’ World titles. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 166 authorized dealers operating 187 points of sale.
We believe our cars are the epitome of performance, luxury and styling. Our product offering comprises four main pillars: the sports range, the GT range, special series and Icona, a line of modern cars inspired by our iconic cars of the past. Our current product range (including cars presented in 2019, for which shipments will commence in 2020) is comprised of five sports cars (SF90 Stradale, F8 Tributo, F8 Spider, 812 Superfast and 812 GTS), four GT cars (Ferrari Roma, Ferrari Portofino, GTC4Lusso and GTC4Lusso T) and two special series cars (488 Pista and 488 Pista Spider), as well as two versions of our first Icona car, the Ferrari Monza SP1 and the Ferrari Monza SP2. We also produce limited edition hypercars, fuori serie and one-off cars. Our most recent hypercar, the LaFerrari Aperta, was launched in 2016 to celebrate our 70 th Anniversary and finished its limited series run in 2018. In 2019, we unveiled the SF90 Stradale (our first series production Plug-in Hybrid Electric Vehicle (PHEV)), the F8 Tributo, the F8 Spider, the 812 GTS and the Ferrari Roma, with shipments of the F8 Tributo commencing in the fourth quarter of 2019 and shipments of the other cars expected to commence in 2020.

In 2019 , we shipped 10,131 cars and recorded net revenues of €3,766 million , EBIT of €917 million and net profit of €699 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of €1,269 million . For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP measures we present, see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures ”.

Whilst broadening our product portfolio to target a larger customer base, we continue to pursue a low volume production strategy in order to maintain a reputation for exclusivity and scarcity among purchasers of our cars and we carefully manage our production volumes and delivery waiting lists to promote this reputation. We divide our regional markets into EMEA, Americas, Mainland China, Hong Kong and Taiwan, and Rest of APAC, representing respectively 48.3 percent , 28.6 percent , 8.3 percent and 14.8 percent of units shipped in 2019 .
We focus our marketing and promotion efforts in the investments we make in our racing activities and in particular, Scuderia Ferrari’s participation in the Formula 1 World Championship, which is one of the most watched annual sports series in the world, with approximately 405.5 million unique television viewers in 2019 in the top 20* markets ( Source: Formula 1 Press Office ). Although our most recent Formula 1 world title was in 2008, we continuously enhance our focus on Formula 1 activities with the goal of improving racing results and restoring our historical position as the premier racing team in Formula 1. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.


__________________________
(*)     Top 20 markets are, in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdom and United States.

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We license the Ferrari brand to a selected number of producers and retailers of luxury and lifestyle goods. In addition, we design, source and sell Ferrari-branded products through a network of 20 Ferrari-owned stores and 24 franchised stores (including 15 Ferrari Store Junior), as well as on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brand in attractive and growing lifestyle categories consistent with our image, including sportswear, watches, accessories, consumer electronics and theme parks which, we believe, enhance the brand experience of our loyal clients and Ferrari enthusiasts.
We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the growth of the premium luxury market. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.

Trends, Uncertainties and Opportunities
Shipments - Our net revenues and results of operations depend on, among other things, the achievement of shipment targets established in our budgets and business plans, which we establish in line with our low volume strategy and growth objectives. As part of this strategy, we seek to manage waiting lists in the various markets in which we operate to respond appropriately to relative levels of demand, based on our order books, while being sensitive to local client expectations in those markets. In certain markets, we believe that waiting lists have promoted the sense of exclusivity of our products and, accordingly, we monitor and manage waiting lists to maintain this exclusivity while ensuring that we do not jeopardize client satisfaction.
In order to maintain our brand’s reputation of exclusivity among purchasers of our cars, we have continued our low volume strategy while responding to growing demand in emerging markets and demographic changes as the size and spending capacity of our target clients has grown, gradually increasing shipments from 8,398 in 2017 to 9,251 in 2018 and 10,131 units in 2019. Our strategic business plan reflects a continuation of this strategy and a broadening of our product portfolio to target a potentially larger customer base, while preserving and enhancing the exclusivity and value of our brand.
The following table sets forth our shipments (1) by geographic location:
For the years ended December 31,
2019
%
2018
%
2017
%
EMEA
UK
1,120

11.1
%
981

10.6
%
843

10.0
%
Germany
967

9.5
%
803

8.7
%
710

8.5
%
Italy
559

5.5
%
479

5.2
%
417

5.0
%
Switzerland
454

4.5
%
380

4.1
%
339

4.0
%
France
452

4.5
%
399

4.3
%
346

4.1
%
Middle East (2)
309

3.1
%
326

3.5
%
331

3.9
%
Other EMEA (3)
1,034

10.1
%
859

9.3
%
751

9.0
%
Total EMEA
4,895

48.3
%
4,227

45.7
%
3,737

44.5
%
Americas (4)
2,900

28.6
%
3,000

32.4
%
2,811

33.5
%
Mainland China, Hong Kong and Taiwan
836

8.3
%
695

7.5
%
617

7.3
%
Rest of APAC (5)
1,500

14.8
%
1,329

14.4
%
1,233

14.7
%
Total
10,131

100.0
%
9,251

100.0
%
8,398

100.0
%
______________________________
(1) Excluding the XX Progamme, racing cars, Fuori Serie, one-off and pre-owned cars
(2) Middle East includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait
(3) Other EMEA includes Africa and the other European markets not separately identified
(4) Americas includes the Unites States of America, Canada, Mexico, the Caribbean and Central and South America
(5) Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia

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We target our products to the upper end of the luxury car segment and buyers of our cars tend to belong to the wealthiest segment of the population. As the size and spending capacity of our target client base has grown significantly in recent years, our addressable market and the sense of exclusivity fostered by our low volume strategy have been further enhanced. In response, we have expanded our distribution capabilities and sought to rebalance the geographic distribution of shipments from several traditional markets, particularly in Europe, to growing markets such as China and other regions in Asia. For example, in 1993, 90 percent of our cars were sold in Italy, Germany and the United States; those markets now represent less than half of our unit shipments. Furthermore, the profitability of our cars may vary from market to market. Given that our shipment strategy is flexible, we are able to adjust shipment allocations across markets to respond to changes in our key markets. We expect that further growth in shipments will result from our deliberate targeting of new customer groups and modes of use through the expansion of our product range. For example, the decrease in shipments in the Americas and the growth in Mainland China, Hong Kong and Taiwan in 2019 reflect a deliberate geographical rebalancing driven by the pace of product phase-ins, waiting lists and other specific market conditions.
Research, Development and Product Lifecycle - We engage in research and development activities aimed at improving the design, performance, advanced technology, safety, efficiency and reliability of our cars. The first stage of product development is the research phase. In this phase, we research the specifications of new models that we believe will appeal to our clients and will be commercially viable. Costs we incur for the development of our cars and engines, as well as their related components and systems, are recognized as an asset if, and only if, both of the following conditions under IAS 38 - Intangible Assets are met: (i) development costs can be measured reliably and (ii) the technical feasibility of the product, estimated volumes and expected pricing support the view that the development expenditure will generate future economic benefits. All other research and development costs are expensed as incurred. Capitalized development costs include all direct and indirect costs that may be directly attributed to the development process.
The level of our capitalized development costs is primarily affected by the timing of updates and renewals to our product range and, more recently, by our intention to integrate newly-introduced powertrain technologies (including hybrid and electric) more broadly into our product portfolio. Our range models typically have a lifecycle of four to five years, while our special series, Icona, hypercars and limited edition cars typically have shorter lifecycles. A portion of our research and development efforts are related to the development of the various components used in our models, and in particular, hybrid, electric, electronic and mechanical components. Our new models generally include new and advanced technological content, part of which is driven by the output from the research and development efforts over components. Our continued focus on component development has the objective of improving performance and reducing the costs to develop new models. Capitalized development costs are amortized on a straight-line basis from the start of production over the estimated lifecycle of the model or the useful life of the components, which is generally between four and eight years.
We also incur research and development expenses in connection with Formula 1 racing activities, including initiatives to maximize the performance, efficiency and safety of our racing cars. While we develop these technologies for initial use in our Formula 1 racing cars, we seek to transfer these components and technologies, where appropriate, to models in our current and future product range. Technological developments and changes in the regulations of the Formula 1 World Championship lead us to design, develop and construct a new racing car each year. The costs for these activities are generally expensed as incurred and classified as research and development costs in the income statement. Research and development costs for Formula 1 activities can vary from year to year and may be difficult to predict because they are subject to, among other things, changes in racing regulations and the need to respond to our car’s performance relative to other racing teams.
Research and development costs expensed, which primarily relate to our Formula 1 racing and research phase activities, remained relatively consistent from 2017 to 2019. As a result of our strategy to update and broaden our product range and significantly increase our efforts relating to hybrid and other advanced technologies, our overall research and development expenditure, and in particular our capitalized development costs, increased significantly during the period from 2017 to 2019.

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The following table summarizes our research and development for the years ended December 31, 2019, 2018 and 2017:
For the years ended December 31,
2019
2018
2017
Capitalized development costs (1)
330

318

185

Research and development costs expensed (A)
559

528

556

Total research and development
889

846

741

Amortization of capitalized development costs (B)
140

115

101

Research and development costs as recognized in the consolidated income statement (A+B)
699

643

657

__________________________
(1) Capitalized to developed costs within intangible assets during the year.

Car Profitability - The relative profitability of the cars we sell tends to vary depending on a number of factors, including exclusivity of the offering, technological advancement and content of the car, engine size and performance, level of personalization and the geographic market in which it is sold. For example, the Ferrari Monza SP1 and SP2 (our first Icona models) and the LaFerrari Aperta (our latest limited edition hypercar) have sales prices that are much higher than other models in the Ferrari product range in light of their exclusivity, as well as the advanced technology and design that accompanies these models. In general, more exclusive offerings generate higher net revenues and provide better margins than those generated on shipments of range models and special series cars, and therefore they benefit our results in the periods in which they are sold. We plan to launch our Icona models more frequently compared to our hypercars and limited edition cars, and we expect this to reduce the volatility in financial performance that we have historically experienced due to the cadence of our hypercars and limited edition cars.
We seek to increase the average price point of our range models and special series over time by continually improving performance, technology and other features, as well as by leveraging the scarcity value resulting from our low volume strategy. In particular, in recent years we have increased the price of selected models in selected markets and introduced new models with higher average selling prices compared to the corresponding predecessor models.
Furthermore, the interior and exterior content of the cars we sell can be customized through our personalization program, which can be further enhanced through additional bespoke specifications. Incremental revenues from personalization are a particularly favorable factor of our pricing and product mix, due to the fact that we generate margin on each additional option selected by the client. Additionally, as we integrate hybrid technology more broadly into our car portfolio, we expect our average price point to increase reflecting the more advanced technological content of the new hybrid models.
Cost of Sales - Cost of sales comprises expenses incurred in the manufacturing and distribution of cars and parts, including engines sold to Maserati and engines rented to other Formula 1 racing teams. The cost of materials, components and labor are the most significant elements of our cost of sales. The remaining costs principally include depreciation, insurance and transportation costs. Cost of sales also includes warranty and product liability-related costs, which are estimated and recorded at the time of shipment of the car. Interest expenses and other financial charges that are directly attributable to our financial services activities, including provisions for risks and write-downs of financial assets, are also reported in cost of sales.
We purchase a variety of components (including mechanical, electrical, electronic, aluminum, steel and plastic components, as well as casting and tires), raw materials (the most significant of which is aluminum) and supplies, and we incur costs of utilities, logistics and other services from numerous suppliers in the manufacture of our cars. Fluctuations in the cost of sales are primarily related to the number of cars we produce and sell along with shifts in car mix. Newer models generally have more technologically advanced components and enhancements, including hybrid and electric technology, and therefore have higher costs per unit; however we expect to price our cars appropriately to recover these costs. Limited edition hypercars, fuori serie and one-off cars, as well as our Icona cars, also tend to have higher costs per unit but these higher costs tend to be more than offset by higher sales prices. Cost of sales are also affected, to a lesser extent, by fluctuations of certain raw material prices, although we typically seek to manage these costs and minimize their volatility through the use of long-term fixed price purchase contracts.

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In recent years, we have made efforts to achieve technical and commercial efficiencies. In particular, technical efficiencies focus on efforts to produce components using innovative and cost-effective materials, without compromising the performance of the components. In order to achieve these technical efficiencies, we perform in-house research and development activities and we invite our suppliers to present us with innovative technical solutions that they have developed. Commercial efficiencies have been achieved through negotiating discounts and entering into long-term contracts with suppliers, who commit upfront to pass on to us a portion of the efficiencies they achieve in performing our supply contracts. Furthermore, efforts are made to award new business to existing suppliers, where appropriate, in order to negotiate favorable pricing. As cost of sales also includes depreciation of plant and equipment, cost of sales is affected by the number and timing of product launches, which trigger the commencement of depreciation of plant and equipment acquired specifically for the production of certain car models.
Effects of Foreign Currency Exchange Rates - We are affected by fluctuations in foreign currency exchange rates (i) through the translation into Euro upon consolidation of foreign currency financial statements of our subsidiaries with functional currencies other than Euro, which we refer to as the translation impact, and (ii) through transactions by entities in the Group in currencies other than their own functional currencies, which we refer to as the transaction impact.
Translation impacts arise in the preparation of the consolidated financial statements; in particular, we present our consolidated financial statements in Euro, while the functional currency of each of our subsidiaries depends on the primary economic environment of that entity. In preparing the consolidated financial statements, we translate into Euro assets and liabilities of foreign subsidiaries expressed in local functional currency other than Euro using the foreign currency exchange rate prevailing at the balance sheet date, while we translate income and expenses using the average foreign currency exchange rates for the period presented. Accordingly, fluctuations in the foreign currency exchange rate of the functional currencies of our subsidiaries against the Euro impacts our results of operations.
Transaction impacts arise when our entities conduct transactions in currencies other than their own functional currency. Therefore, we are also exposed to foreign currency risks in connection with scheduled receipts and payments in multiple currencies. Our costs are primarily denominated in Euro, while our net revenues may be denominated in Euro, U.S. Dollars, Pound Sterling, Japanese Yen, Chinese Yuan or other currencies. In general, an appreciation of the U.S. Dollar against the Euro would positively impact our net revenues and results of operations.
Our risk management policies contemplate the use of derivative financial instruments to hedge foreign currency exchange rate risk. In particular, we have used derivative financial instruments as cash flow hedges for the purpose of hedging the foreign currency exchange rate at which a predetermined proportion of forecasted transactions denominated in foreign currencies will occur. Accordingly, our results of operations have not been fully exposed to fluctuations in foreign currency exchange rates. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk ” for information related to our foreign currency exchange rate risk policies.
Regulation - We ship our cars throughout the world and are therefore subject to a variety of laws and regulations, including tariffs. These laws regulate our cars, including their emissions, fuel consumption and safety, as well as our manufacturing facilities. As we are currently a small volume manufacturer in certain jurisdictions, we benefit from certain regulatory exemptions, including less stringent emissions caps. Developing, engineering and producing cars which meet continuously evolving regulatory requirements, and can therefore be sold in the relevant markets, requires a significant effort and expenditure of resources. See “Item 4.B. Business Overview—Regulatory Matters ” for additional information.
Equity Incentive Plan - Following the approval of the equity incentive plan by the Board of Directors in March 2017, in April 2017 our Shareholders approved an award of performance share units (“PSUs”) to our former Chief Executive Officer and awards of PSUs and restricted share units (“RSUs”) to members of the Senior Management Team and key leaders of the Group (“Equity Incentive Plan 2016-2020”). The grants of the PSUs and the RSUs, each representing the right to receive one Ferrari common share, cover a five -year performance period from 2016 to 2020. In 2018 additional PSU and RSU awards were granted to our current Chief Executive Officer and certain key employees of the Group under the Equity Incentive Plan 2016-2020.

Under a new equity incentive plan approved in 2019, additional PSUs and RSUs were awarded to the Executive Chairman, the Chief Executive Officer, all members of the SMT and other key employees of the Group (“Equity Incentive Plan 2019-2021”). These additional PSUs and RSUs cover a three-year performance period from 2019 to 2021.


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For the years ended December 31, 2019, 2018 and 2017, the Company recognized €17 million , €22 million and €28 million , respectively, as share-based compensation expense and an increase to other reserves in equity for the PSU awards and RSU awards. At December 31, 2019, unrecognized compensation expense amounted to €19 million and will be recognized over the remaining vesting periods through 2021.

For additional information see Note 21 “Share-Based Compensation” to the Consolidated Financial Statements included elsewhere in this document.
Patent Box Benefit - In September 2018, the Group signed an agreement with the Italian Revenue Agency in relation to the Patent Box tax regime, which provides tax benefits for companies that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and know-how. The agreement relates to the five-year period from 2015 to 2019. The Group applied the Patent Box tax regime for the calculation of income taxes starting in the third quarter of 2018. The Patent Box tax benefit relating to the years 2015 to 2017, amounting to €141 million, was recognized in 2018, in addition to the Patent Box tax benefit relating to the year 2018. As a result of applying the Patent Box tax regime, our tax expense was significantly reduced in 2018 and 2019.
The benefit relating to the years 2015 to 2017 of €141 million, which was recognized in 2018, was excluded in the calculation of Adjusted Net Profit and Adjusted Basic and Diluted Earnings per Common Share for 2018.

The Group is progressing with the required activities to apply the Patent Box tax regime for the period from 2020 to 2024, in line with currently applicable tax regulations in Italy.
For additional information see Note 10 “Income taxes” to the Consolidated Financial Statements included elsewhere in this document.
Asset-backed financing (securitizations) - Starting in 2016 we have pursued a strategy of autonomous financing for our financial services activities in the United States, further reducing dependency on intercompany funding and increasing the portion of self-liquidating debt with various securitization transactions. At December 31, 2019 and 2018 our funding under securitization programs amounted to €788 million and €683 million , respectively.
For additional information see Note 24 “Debt” to the Consolidated Financial Statements included elsewhere in this document.

Takata Airbag Inflator Recalls - In 2016, an industry wide recall relating to Takata airbags manufactured using non-desiccated Phase Stabilized Ammonium Nitrate (“PSAN”) occurred. Although we are not aware of any confirmed incidents or warranty claims relating to such airbag inflators mounted in our cars or that the airbag inflators were not performing as designed, in 2016 we initiated a global recall campaign to include all of our cars produced in all model years that contained such airbag inflators. The global recall campaign was implemented based on priority groups and the timeline set by the United States National Highway Traffic Safety Administration (“NHTSA”). See “Item 4.B. Business Overview—Regulatory Matters ” for additional information. As a result of these developments and due to the uncertainty of recoverability of the costs from Takata, an aggregate provision of €37 million was recognized within cost of sales in 2016. At December 31, 2019, the provision amounted to €16 million, reflecting the current best estimate for future costs related to the entire recall campaign to be carried out by the Group.
Due to the significant scope and industry-wide nature of the Takata recall and the supply constraints of Takata, the charges for Takata airbag inflator recalls and subsequent partial release are considered to be significant in nature but expected to incur infrequently and therefore Ferrari has excluded these charges in the calculation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Profit and Adjusted Basic and Diluted Earnings per Common Share.

Maserati Engine Volumes - We have been producing engines for Maserati since 2003. The V8 engines that we historically produced and continue to produce for Maserati are variants of Ferrari families of engines and are mounted on Maserati’s highest performing models. In 2011, we began producing a V6 family of engines exclusively for Maserati. We currently have a multi-year arrangement with Maserati to provide V6 engines up to 2020. Net revenues generated from sales of engines to Maserati depend on the orders received from Maserati, which in turn depend on Maserati production volumes and product launches. Our net revenues from engines have declined in the periods presented as a result of lower orders received from Maserati.

65


Critical Accounting Estimates
The Consolidated Financial Statements are prepared in accordance with IFRS which require the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and the amounts of income and expenses recognized. The estimates and associated assumptions are based on elements that are known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant.
The estimates and underlying assumptions are reviewed periodically and continuously by us. If the items subject to estimates do not perform as assumed, then the actual results could differ from the estimates, which would require adjustment accordingly. The effects of any changes in estimate are recognized in the consolidated income statement in the period in which the adjustment is made, or prospectively in future periods.
The items requiring estimates for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future are discussed below.
Recoverability of non-current assets with definite useful lives
Non-current assets with definite useful lives include property, plant and equipment and intangible assets. Intangible assets with definite useful lives mainly consist of capitalized development costs.
We periodically review the carrying amount of non-current assets with definite useful lives when events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing the carrying amount and the recoverable amount of the cash-generating unit (“CGU”). The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.
For the period covered by the Consolidated Financial Statements, we have not recognized any impairment charges for non-current assets with definite useful lives.
Recoverability of goodwill
In accordance with IAS 36 - Impairment of Assets , goodwill is not amortized and is tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
As the Group is composed of one operating segment, goodwill is tested at the Group level which represents the lowest level within the Group at which goodwill is monitored for internal management purposes in accordance with IAS 36. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill and capitalized development costs) and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.
For the period covered by the Consolidated Financial Statements, we have not recognized any impairment charges for goodwill.
Development costs
Development costs are capitalized if the conditions under IAS 38 - Intangible Assets have been met. The starting point for capitalization is based upon the technological and commercial feasibility of the project, which is usually when a product development project has reached a defined milestone according to our established product development model. Feasibility is based on management’s judgment which is formed on the basis of estimated future cash flows. Capitalization ceases and amortization of capitalized development costs begins on start of production of the relevant project.
The amortization of development costs requires management to estimate the lifecycle of the related model. Any changes in such assumptions would impact the amortization charge recorded and the carrying amount of capitalized development costs. The periodic amortization charge is derived after determining the expected lifecycle of the related model and, if applicable, any expected residual value at the end of its life. Increasing an asset’s expected lifecycle or its residual value would result in a reduced amortization charge in the consolidated income statement.


66


The useful lives and residual values of our models are determined by management at the time of capitalization and reviewed annually for appropriateness and recoverability. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life, such as changes in technology. Historically, changes in useful lives and residual values have not resulted in material changes to the amortization charge or estimated recoverability of the related assets.

Product warranties liabilities
We establish reserves for product warranties at the time the sale is recognized. We issue various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term, which is generally defined by the legislation in the country where the car is sold. The reserve for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each car line and each model year of that car line, as well as historical claims experience for our cars. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
We periodically initiate voluntary service actions to address various client satisfaction, safety and emissions issues related to cars sold. Included in the reserve is the estimated cost of these services and recall actions. The estimated future costs of these actions are based primarily on historical claims experience for our cars and the cost of parts and services to be incurred in the specified activities and are recognized at the time when they are probable and reasonably estimable. Estimates of the future costs of these actions are inevitably imprecise due to several uncertainties, including the number of cars affected by a service or recall action. It is reasonably possible that the ultimate cost of these service and recall actions may require us to make expenditures in excess of (or less than) established reserves over an extended period of time. The estimate of warranty and additional service obligations is periodically reviewed during the year.
In addition, we make provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict and have the potential to vary significantly in amount. Costs associated with these provisions are recorded in the consolidated income statement and any subsequent adjustments are recorded in the period in which the adjustment is determined.
Share-based compensation

We account for our equity incentive plans in accordance with IFRS 2 - Share-based Payment, which requires the recognition of share-based compensation expense based on the fair value of the awards granted. Share-based compensation for equity-settled awards including market performance conditions is measured at the grant date of the awards using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of our common stock, the dividend yield, interest rates and the correlation coefficient between our common stock and the relevant market index. The probability that the Group will achieve a certain level of Total Shareholder Return performance compared to the defined peer group is also considered. As a result, at the grant date management is required to make key assumptions and estimates regarding conditions that will occur in the future, which inherently involves uncertainty. Therefore, the amount of share-based compensation recognized has been affected by the significant assumptions and estimates used.

Other contingent liabilities
We make provisions in connection with pending or threatened disputes or legal proceedings when it is considered probable that there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes possible but the amount cannot be estimated, the matter is disclosed in the notes to the Consolidated Financial Statements. We are the subject of legal and tax proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the outflow of funds that could result from such disputes with any certainty. Moreover, the cases and claims against us often derive from complex legal issues which are subject to a differing degree of uncertainty, including the facts and circumstances of each particular case and the manner in which applicable law is likely to be interpreted and applied to such fact and circumstances, and the jurisdiction and the different laws involved. We monitor the status of pending legal proceedings and consult with experts on legal and tax matters on a regular basis. It is therefore possible that the provisions for our legal proceedings and litigation may vary as the result of future developments in pending matters.

67


Litigation
Various legal proceedings, claims and governmental investigations are pending against us on a wide range of topics, including car safety, emissions and fuel economy, early warning reporting, dealer, supplier and other contractual relationships, intellectual property rights and product warranty matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seatbelts, brakes, transmissions, engines and fuel systems) in various car models or allege general design defects relating to car handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases could include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require us to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and a reliable estimate can be made. Since these accruals represent estimates, it is reasonably possible that the resolution of some of these matters could require us to make payments in excess of the amounts accrued. It is also reasonably possible that the resolution of some of the matters for which accruals could not be made may require us to make payments in an amount or range of amounts that could not be reasonably estimated.
The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on our operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, it is believed that any resulting adjustment would not materially affect our consolidated financial position.

68


Non-GAAP Financial Measures

We monitor and evaluate our operating and financial performance using several non-GAAP financial measures including: EBITDA, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Profit, Adjusted Basic and Diluted Earnings per Common Share, Net Debt, Net Industrial Debt, Free Cash Flow and Free Cash Flow from Industrial Activities, as well as a number of financial metrics measured on a constant currency basis. We believe that these non-GAAP financial measures provide useful and relevant information regarding our performance and our ability to assess our financial performance and financial position. They also provide us with comparable measures that facilitate management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. While similar measures are widely used in the industry in which we operate, the financial measures we use may not be comparable to other similarly titled measures used by other companies nor are they intended to be substitutes for measures of financial performance or financial position as prepared in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA is defined as net profit before income tax expense, net financial expenses and amortization and depreciation. Adjusted EBITDA is defined as EBITDA as adjusted for certain income and costs, which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. EBITDA is presented by management to aid investors in their analysis of the performance of the Group and to assist investors in the comparison of the Group’s performance with that of other companies. Adjusted EBITDA is presented to demonstrate how the underlying business has performed prior to the impact of the adjustments, which may obscure the underlying performance and impair comparability of results between periods.
The following table sets forth the calculation of EBITDA and Adjusted EBITDA for the years ended December 31, 2019 , 2018 and 2017 , and provides a reconciliation of these non-GAAP measures to net profit.

For the years ended December 31,

2019
2018
2017

(€ million)
Net profit
699

787

537

Income tax expense
176

16

209

Net financial expenses
42

23

29

Amortization and depreciation
352

289

261

EBITDA
1,269

1,115

1,036

Release of charges for Takata airbag inflator recalls
—

(1
)
—

Adjusted EBITDA
1,269

1,114

1,036

Adjusted EBIT
Adjusted EBIT represents EBIT as adjusted for certain income and costs which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted EBIT for the years ended December 31, 2019 , 2018 and 2017 .

For the years ended December 31,

2019
2018
2017

(€ million)
EBIT
917

826

775

Release of charges for Takata airbag inflator recalls
—

(1
)
—

Adjusted EBIT
917

825

775


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Adjusted Net Profit
Adjusted Net Profit represents net profit as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. The tax effect is calculated by applying the corporate tax rate in Italy, which was 24.0 percent for all years presented, and the Italian Regional Income Tax (“IRAP”), which was 3.9 percent for all years presented. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted Net Profit for the years ended December 31, 2019 , 2018 and 2017 .
For the years ended December 31,
2019
2018
2017
(€ million)
Net profit
699

787

537

Patent box benefit for the period 2015-2017
—

(141
)
—

Release of charges for Takata airbag inflator recalls (net of tax effect)
—

(1
)
—

Adjusted Net Profit
699

645

537

Adjusted Basic and Diluted Earnings per Common Share
Adjusted Basic and Diluted Earnings per Common Share represents earnings per share, as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. The tax effect is calculated by applying the corporate tax rate in Italy, which was 24.0 percent for all years presented, and the Italian Regional Income Tax (“IRAP”), which was 3.9 percent for all years presented. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted Basic and Diluted Earnings per Common Share for the years ended December 31, 2019 , 2018 and 2017 .
For the years ended December 31,
2019
2018
2017
Net profit attributable to owners of the Company
€ million
696

785

535

Patent box benefit for the period 2015-2017
€ million
—

(141
)
—

Release of charges for Takata airbag inflator recalls (net of tax effect)
€ million
—

(1
)
—

Adjusted profit attributable to owners of the Company
€ million
696

643

535

Weighted average number of common shares for basic earnings per share
thousand
186,767

188,606

188,951

Adjusted basic earnings per common share
€
3.73

3.41

2.83

Weighted average number of common shares (1) for diluted earnings per common share
thousand
187,535

189,394

189,759

Adjusted diluted earnings per common share
€
3.71

3.40

2.82

_____________________________
(1)
The weighted average number of common shares for diluted earnings per share was increased to take into consideration the theoretical effect of (i) the potential common shares that would be issued under the equity incentive plan for the years ended December 31, 2019, 2018 and 2017 (assuming 100 percent of the related awards vested), and (ii) the potential common shares that would have been issued for the Non-Executive Directors’ compensation agreement for the year ended December 31, 2017.

See Note 12 “ Earnings per Share ” to the Consolidated Financial Statements, included elsewhere in this document, for the calculation of the basic and diluted earnings per common share.

70


Net Debt and Net Industrial Debt
Due to different sources of cash flows used for the repayment of debt between industrial activities and financial services activities, and the different business structure and leverage implications, Net Industrial Debt, together with Net Debt, are the primary measures used by us to analyze our capital structure and financial leverage. We believe the presentation of Net Industrial Debt aids management and investors in their analysis of the Group’s financial position and financial performance and to compare the Group’s financial position and financial performance with that of other companies. Net Industrial Debt is defined as total debt less total cash and cash equivalents (Net Debt), further adjusted to exclude the debt and cash and cash equivalents related to our financial services activities (Net Debt of Financial Services Activities). Prior to the first quarter of 2019, we defined Net Industrial Debt as Net Debt adjusted to exclude (a) the funded portion of the self-liquidating financial receivables portfolio, which is the portion of our receivables from financing activities that we fund with external debt or intercompany loans but not (b) the cash and cash equivalents of the financial activities, since such cash was considered also available for use in our industrial activities. We believe the current definition provides a more comprehensive disclosure of our underlying financial leverage from industrial activities. Net Industrial Debt for the comparative period has been restated to conform to the current presentation.
The following table sets forth a reconciliation of Net Debt and Net Industrial Debt at December 31, 2019 , and 2018 .

At December 31,

2019

2018

(€ million)
Cash and cash equivalents
898

794

Debt
(2,090
)
(1,927
)
Net Debt (A)
(1,192
)
(1,133
)
Net Debt of Financial Services Activities (B)
(855
)
(763
)
Net Industrial Debt (A-B)
(337
)
(370
)
Free Cash Flow and Free Cash Flow from Industrial Activities
Free Cash Flow and Free Cash Flow from Industrial Activities are two of our primary key performance indicators to measure the Group’s performance. These measures are presented by management to aid investors in their analysis of the Group’s financial performance and to compare the Group’s financial performance with that of other companies. Free Cash Flow is defined as cash flows from operating activities less investments in property, plant and equipment and intangible assets. Free Cash Flow from Industrial Activities is defined as Free Cash Flow adjusted to exclude the operating cash flow from our financial services activities (Free Cash Flow from Financial Services Activities). Prior to the first quarter of 2019, we defined Free Cash Flow as cash flows from operating activities less cash flows used in investing activities, and we defined Free Cash Flow from Industrial Activities as Free Cash Flow adjusted for the change in the self-liquidating financial receivables portfolio (which is the change in our receivables from financing activities). In order to align our definition of Free Cash Flow to other more common definitions and to allow the definition of Free Cash Flow from Industrial Activities to exclude all cash flows from operating activities not attributable to the industrial activities, even if such cash flows were available for industrial activities, we determined it was appropriate to redefine Free Cash Flow and Free Cash Flow from Industrial Activities starting in 2019. Free Cash Flow and Free Cash Flow from Industrial Activities for the comparative periods have been restated to conform to the current presentation.
The following table sets forth our Free Cash Flow and Free Cash Flow from Industrial Activities for the years ended December 31, 2019 , 2018 and 2017 .

For the years ended December 31,

2019
2018
2017

(€ million)
Cash flows from operating activities
1,306

934

663

Investments in property, plant and equipment and intangible assets
(706
)
(639
)
(392
)
Free Cash Flow
600

295

271

Free Cash Flow from Financial Services Activities
(75
)
(80
)
(37
)
Free Cash Flow from Industrial Activities
675

375

308


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For further information on Free Cash Flow and Free Cash Flow from Industrial Activities, see “ Liquidity and Capital Resources - Free Cash Flow and Free Cash Flow from Industrial Activities ” below.
Constant Currency Information
The “Results of Operations” discussion below includes information about our net revenues on a constant currency basis, which excludes the effects of foreign currency translation from our subsidiaries with functional currencies other than Euro, as well as the effects of foreign currency transaction impact and foreign currency hedging. We use this information to assess how the underlying revenues changed independent of fluctuations in foreign currency exchange rates and hedging. We calculate constant currency by (i) applying the prior-period average foreign currency exchange rates to translate current period revenues of foreign subsidiaries expressed in local functional currency other than Euro, (ii) applying the prior-period average foreign currency exchange rates to current period revenues originated in a currency other than the functional currency of the applicable entity, and (iii) eliminating the variances of any foreign currency hedging (see Note 2 “ Significant Accounting Policies ” to the Consolidated Financial Statements, included elsewhere in this document, for information on the foreign currency exchange rates applied). Although we do not believe that these measures are a substitute for GAAP measures, we do believe that revenues excluding the impact of currency fluctuations and the impact of hedging provide additional useful information to investors regarding the operating performance on a local currency basis.

72


A. Operating Results
Results of Operations
Consolidated Results of Operations – 2019 compared to 2018 and 2018 compared to 2017
The following is a discussion of the results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018 , and for the year ended December 31, 2018 as compared to the year ended December 31, 2017 . The presentation includes line items as a percentage of net revenues for the respective periods presented to facilitate year-over-year comparisons.
For the years ended December 31,
2019
Percentage of net revenues
2018
Percentage of net revenues
2017
Percentage of net revenues
(€ million, except percentages)
Net revenues
3,766

100.0
%
3,420

100.0
%
3,417

100.0
%
Cost of sales
1,805

47.9
%
1,623

47.4
%
1,651

48.3
%
Selling, general and administrative costs
343

9.1
%
327

9.6
%
329

9.6
%
Research and development costs
699

18.6
%
643

18.8
%
657

19.2
%
Other expenses, net
5

0.1
%
4

0.1
%
7

0.2
%
Result from investments
3

0.1
%
3

0.1
%
2

0.1
%
EBIT
917

24.4
%
826

24.2
%
775

22.7
%
Net financial expenses
42

1.2
%
23

0.7
%
29

0.9
%
Profit before taxes
875

23.2
%
803

23.5
%
746

21.9
%
Income tax expense
176

4.6
%
16

0.5
%
209

6.1
%
Net profit
699

18.6
%
787

23.0
%
537

15.8
%
Net revenues
The following table sets forth an analysis of our net revenues for the periods indicated:

For the years ended December 31,
Increase/(Decrease)

2019
Percentage of net revenues

2018
Percentage of net revenues
2017
Percentage of net revenues
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Cars and spare parts (1)
2,926

77.7
%
2,535

74.1
%
2,456

71.9
%
391

15.4
%
79

3.2
%
Engines (2)
198

5.3
%
284

8.3
%
373

10.9
%
(86
)
(30.3
)%
(89
)
(23.8
)%
Sponsorship, commercial and brand (3)
538

14.3
%
506

14.8
%
494

14.5
%
32

6.4
%
12

2.4
%
Other (4)
104

2.7
%
95

2.8
%
94

2.7
%
9

10.0
%
1

1.4
%
Total net revenues
3,766

100.0
%
3,420

100.0
%
3,417

100.0
%
346

10.1
%
3

0.1
%
______________________________
(1)
Includes net revenues generated from shipments of our cars, including any personalization net revenues generated on these cars, as well as sales of spare parts.
(2)
Includes net revenues generated from the sale of engines to Maserati for use in their cars, and the revenues generated from the rental of engines to other Formula 1 racing teams.
(3)
Includes net revenues earned by our Formula 1 racing team through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues, as well as net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income.
(4)
Primarily relates to financial services activities and management of the Mugello racetrack.

73


2019 compared to 2018
Net revenues for 2019 were €3,766 million , an increase of €346 million , or 10.1 percent (an increase of 8.2 percent on a constant currency basis), from €3,420 million for 2018 .
The increase in net revenues was attributable to the combination of (i) a €391 million increase in cars and spare parts, (ii) a €32 million increase in sponsorship, commercial and brand, and (iii) a €9 million increase in other net revenues, partially offset by (iv) an €86 million decrease in engines.

Cars and spare parts
Cars and spare parts net revenues were €2,926 million for 2019 , an increase of €391 million , or 15.4 percent , from €2,535 million for 2018 .
The €391 million increase in net revenues was composed of increases in all four of our main geographical regions, including: (i) a €209 million increase in EMEA, (ii) a €77 million increase in Mainland China, Hong Kong and Taiwan, (iii) a €76 million increase in Americas (including positive foreign currency translation impact driven by the strengthening of the U.S. Dollar compared to the Euro) and (iv) a €29 million increase in the Rest of APAC.
The increase in net revenues was primarily attributable to positive volume impact, positive contribution from our personalization programs and positive foreign currency impact. In particular, total shipments increased by 880 cars, or 9.5 percent , compared to the prior year, primarily attributable to an 11.2 percent increase in V8 models and a 4.6 percent increase in V12 models. The increase in shipments was mainly driven by deliveries of the Ferrari Portofino, the 812 Superfast, the 488 Pista and 488 Pista Spider, and the initial deliveries of the F8 Tributo, as well as the initial deliveries of our Ferrari Monza SP1 and SP2 in the last four months of 2019. These effects were partially offset by lower shipments of the 488 GTB and 488 Spider, which concluded their lifecycle in 2019, as well as deliveries in 2018 of the LaFerrari Aperta and the strictly limited edition Ferrari J50.
Considering our four main geographical areas, the increase in shipments in 2019 compared to 2018 of 9.5 percent was composed of: (i) an increase in Mainland China, Hong Kong and Taiwan of 20.3 percent, (ii) an increase in EMEA of 15.8 percent, and (iii) an increase in Rest of APAC of 12.9 percent, partially offset by (iv) a decrease in Americas of 3.3 percent, reflecting a deliberate geographical rebalancing driven by the pace of product phase-ins and waiting lists.
Engines
Net revenues generated from engines were €198 million for 2019 , a decrease of €86 million , or 30.3 percent , from €284 million for 2018 . The €86 million decrease was attributable to a decrease in net revenues generated from the sale of engines to Maserati.
Sponsorship, commercial and brand
Net revenues generated from sponsorship, commercial agreements and brand management activities were €538 million for 2019 , an increase of €32 million , or 6.4 percent , from €506 million for 2018 . The increase was primarily attributable to higher revenues from Formula 1 racing activities and positive foreign currency exchange impact.
2018 compared to 2017
Net revenues for 2018 were €3,420 million , an increase of €3 million , or 0.1 percent (an increase of 3.2 percent on a constant currency basis), from €3,417 million for 2017 .
The increase in net revenues was attributable to the combination of (i) a €79 million increase in cars and spare parts, (ii) a €12 million increase in sponsorship, commercial and brand and (iii) a €1 million increase in other net revenues, partially offset by (iv) an €89 million decrease in engines.




74


Cars and spare parts
Cars and spare parts net revenues were €2,535 million for 2018, an increase of €79 million , or 3.2 percent , from €2,456 million for 2017.
The €79 million increase in net revenues was composed of (i) a €70 million increase in EMEA, (ii) a €30 million increase in Rest of APAC and (iii) a €2 million increase in Americas, partially offset by (iv) a €23 million decrease in Mainland China, Hong Kong and Taiwan.

The increase in net revenues was primarily attributable to positive volume impact across all major geographical regions, as well as greater contribution from our personalization programs and pricing increases, partially offset by negative foreign currency exchange impact. In particular, total shipments increased by 853 cars, or approximately 10 percent, comprised of an increase in V12 models of approximately 20 percent and an increase in V8 models of approximately 7 percent. The increase in volumes was driven by shipments of the Ferrari Portofino, the 812 Superfast, the newly launched 488 Pista and deliveries of the strictly limited edition Ferrari J50 and FXX K EVO, partially offset by the phase out of the California T in 2018 and the F12berlinetta and limited series F12tdf in 2017, as well as a decrease in shipments of the LaFerrari Aperta, which finished its limited series run in 2018.

Engines
Net revenues generated from engines were €284 million for 2018 , a decrease of €89 million , or 23.8 percent , from €373 million for 2017 . The €89 million decrease was mainly attributable to a decrease in net revenues generated from the sale of engines to Maserati.
Sponsorship, commercial and brand
Net revenues generated from sponsorship, commercial agreements and brand management activities were €506 million for 2018 , an increase of €12 million , or 2.4 percent , from €494 million for 2017 . The increase was primarily related to sponsorship revenues and a higher 2017 championship ranking compared to 2016, partially offset by other brand related activities and negative foreign currency exchange impact.
Cost of sales

For the years ended December 31,
Increase/(Decrease)

2019
Percentage of net revenues
2018
Percentage of net revenues

2017
Percentage of net revenues
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Cost of sales
1,805

47.9
%
1,623

47.4
%
1,651

48.3
%
182

11.2
%
(28
)
(1.7
)%
2019 compared to 2018
Cost of sales for 2019 was €1,805 million , an increase of €182 million , or 11.2 percent , from €1,623 million for 2018 . As a percentage of net revenues, cost of sales increased from 47.4 percent in 2018 to 47.9 percent in 2019 .
The increase in cost of sales was primarily attributable to an increase in volumes, a change in product mix, higher industrial costs and, to a lesser extent, higher depreciation and negative foreign currency exchange impact, partially offset by a decrease in costs related to lower Maserati engine volumes and a release of provisions related to favorable developments in emissions regulations that occurred in the third quarter of 2019.

2018 compared to 2017
Cost of sales for 2018 was €1,623 million , a decrease of €28 million , or 1.7 percent , from €1,651 million for 2017 . As a percentage of net revenues, cost of sales decreased from 48.3 percent in 2017 to 47.4 percent in 2018 .

75


The decrease in cost of sales was primarily attributable to a lower Maserati engine volumes and lower industrial costs, including warranty charges, partially offset by an increase in volumes, as well as higher depreciation. The increase in cost of sales related to volumes was driven by the 812 Superfast, the Ferrari Portofino and the newly-launched 488 Pista, partially offset by the phase-outs of the F12tdf, the F12berlinetta and the California T.
Selling, general and administrative costs

For the years ended December 31,
Increase/(Decrease)

2019
Percentage of net revenues
2018
Percentage of net revenues
2017
Percentage of net revenues
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Selling, general and administrative costs
343

9.1
%
327

9.6
%
329

9.6
%
16

4.8
%
(2
)
(0.5
)%
2019 compared to 2018
Selling, general and administrative costs for 2019 were €343 million , an increase of €16 million , or 4.8 percent , from €327 million for 2018 . As a percentage of net revenues, selling, general and administrative costs decreased from 9.6 percent in 2018 to 9.1 percent in 2019 .
The increase in selling, general and administrative costs was primarily attributable to product launches for new cars in our product offering as well as costs incurred to support the organic growth of the business.
2018 compared to 2017
Selling, general and administrative costs for 2018 were €327 million , a decrease of €2 million , or 0.5 percent , from €329 million for 2017 . As a percentage of net revenues, selling, general and administrative costs were substantially unchanged.
Research and development costs

For the years ended December 31,
Increase/(Decrease)

2019

Percentage of net revenues
2018

Percentage of net revenues
2017
Percentage of net revenues
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Research and development costs expensed during the year
559

14.9
%
528

15.4
%
556

16.3
%
31

6.0
%
(28
)
(5.2
)%
Amortization of capitalized development costs
140

3.7
%
115

3.4
%
101

2.9
%
25

21.2
%
14

14.6
%
Research and development costs
699

18.6
%
643

18.8
%
657

19.2
%
56

8.7
%
(14
)
(2.1
)%

2019 compared to 2018

Research and development costs for 2019 were €699 million , an increase of €56 million , or 8.7 percent, from €643 million for 2018 . As a percentage of net revenues, research and development costs were 18.6 percent in 2019 compared to 18.8 percent in 2018 .

The increase in research and development costs was primarily to support innovation activities on our product range and components, as well as expenses incurred in relation to Formula 1 racing activities. Additionally, amortization of capitalized development costs increased by 21.2 percent as a result of an increase in capitalized development costs in prior years.


76


2018 compared to 2017
Research and development costs for 2018 were €643 million , a decrease of €14 million , or 2.1 percent, from €657 million for 2017 . As a percentage of net revenues, research and development costs were 18.8 percent in 2018 compared to 19.2 percent in 2017 .
The decrease in research and development costs was attributable to a decrease of €28 million in research and development costs expensed, primarily driven by lower research and development costs for Formula 1 activities and lower research activities for our GT and sports cars, partially offset by an increase of €14 million in amortization of capitalized development costs.
EBIT

For the years ended December 31,
Increase/(Decrease)

2019
Percentage of net revenues
2018
Percentage of net revenues
2017
Percentage of net revenues
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
EBIT
917

24.4
%
826

24.2
%
775

22.7
%
91

11.0
%
51

6.6
%
2019 compared to 2018
EBIT for 2019 was €917 million , an increase of €91 million , or 11.0 percent , from €826 million for 2018 . As a percentage of net revenues, EBIT increased from 24.2 percent in 2018 to 24.4 percent in 2019 .
The increase in EBIT was primarily attributable to the combined effects of (i) positive volume impact of €99 million, (ii) positive product mix and price impact of €78 million, (iii) an increase in research and development costs of €56 million, (iv) an increase in selling, general and administrative costs of €16 million, (v) an increase of industrial costs of €31 million mainly due to the operational startup costs in connection with the introduction of new models, including higher depreciation of fixed assets and other variable costs, (vi) negative contribution of €33 million due to lower engine sales to Maserati and other supporting activities, and (vii) positive foreign currency exchange impact of €50 million (including foreign currency hedging instruments) primarily driven by the strengthening of the U.S. Dollar compared to the Euro.

The positive volume impact was attributable to an increase in total shipments, driven by the 488 Pista family, the Ferrari Portofino and the 812 Superfast, as well as the initial deliveries of the new F8 Tributo, partially offset by lower shipments of the 488 GTB and the 488 Spider, which concluded their lifecycle in 2019. The positive product mix and price impact was primarily attributable to the combined positive effects of the Ferrari Monza SP1 and SP2 in the fourth quarter of 2019, our personalization program and deliveries of the FXX K EVO, partially offset by negative product mix from range models as well as prior year shipments of the LaFerrari Aperta and the strictly limited edition Ferrari J50.

2018 compared to 2017
EBIT for 2018 was €826 million , an increase of €51 million , or 6.6 percent , from €775 million for 2017 . As a percentage of net revenues, EBIT increased from 22.7 percent in 2017 to 24.2 percent in 2018 .
The increase in EBIT was primarily attributable to the combined effects of (i) positive volume impact of €118 million, (ii) negative product mix and price impact of €17 million, (iii) a decrease in research and development costs of €14 million, (iv) a decrease in selling, general and administrative costs of €2 million, (v) net positive contribution from other supporting activities of €26 million, (vi) negative foreign currency exchange impact of €92 million (including foreign currency hedging instruments) primarily driven by fluctuations in the U.S. Dollar, the Pound Sterling and the Japanese Yen compared to the Euro.
The positive volume impact of €118 million was attributable to an increase in total shipments, driven by the 812 Superfast, the Ferrari Portofino and the 488 Pista. The negative product mix and price impact of €17 million was primarily attributable to the combined impact of lower sales of LaFerrari Aperta and the strong performance of the Ferrari Portofino, partially offset by the 812 Superfast, as well as pricing increases and deliveries of the strictly limited edition Ferrari J50 and the FXX K EVO. The net positive contribution from other supporting activities of €26 million was primarily attributable to

77


sponsorship activities, a higher 2017 championship ranking compared to 2016 and a pronouncement on a prior year’s legal dispute, partially offset by a lower contribution from other brand related activities and engines supplied to Maserati.
Net financial expenses

For the years ended December 31,
Increase/(Decrease)

2019
2018
2017
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Net financial expenses
42

23

29

19

78.6
%
(6
)
(19.5
)%
2019 compared to 2018
Net financial expenses for 2019 were €42 million compared to €23 million for 2018 , representing an increase of €19 million .    The increase in net financial expenses was primarily attributable to the net costs of hedging and foreign exchange losses of €11 million and €8 million of costs incurred in connection with the partial repurchase of bonds following a cash tender offer in July 2019, as well as the recognition of unamortized issuance costs.
2018 compared to 2017
Net financial expenses for 2018 were €23 million compared to €29 million for 2017 , representing a decrease of €6 million .    The decrease in net financial expenses was primarily attributable to (i) a decrease in interest expenses and (ii) a decrease in net foreign exchange losses. The decrease in interest expenses was mainly driven by lower interest on bank borrowings due to the full repayment of a bank loan in November 2017, partially offset by higher interest on bonds due to a new bond issued in November 2017. For the year ended December 31, 2017, net financial expenses included gains resulting from exercising the Delta Topco option.
Income tax expense

For the years ended December 31,
Increase/(Decrease)

2019
2018
2017
2019 vs. 2018
2018 vs. 2017

(€ million, except percentages)
Income tax expense
176

16

209

160

n.m.
(193
)
(92.2
)%
2019 compared to 2018
Income tax expense for 2019 was €176 million , an increase of €160 million , compared to €16 million for 2018 .
In September 2018, the Group signed an agreement with the Italian Revenue Agency in relation to the Patent Box tax regime, which provides a tax benefit for companies that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and know-how. For further information see Note 10 “ Income Taxes ” to our Consolidated Financial Statements included elsewhere in this document. Income taxes for 2018 included the positive impact of the Patent Box benefit relating to the years 2015 to 2017 of €141 million.
The effective tax rate (net of IRAP) was 17.0 percent for 2019 compared to (1.1) percent for 2018 (total effective tax rate of 20.2 percent and 2.0 percent for 2019 and 2018, respectively).

2018 compared to 2017

Income tax expense for 2018 was €16 million , a decrease of €193 million , or 92.2 percent , from €209 million for 2017 . The decrease in income tax expense was primarily attributable to the positive impact from the application of the Patent Box tax regime (as described above), including €141 million of Patent Box benefits related to the years 2015 to 2017 (of which €139 million was from direct use and €2 million was from indirect use of copyrights, patents, trademarks, designs and know-how) and the estimated Patent Box tax benefit relating to the year 2018, which amounted to €61 million.

78


Recent Developments
See Note 32 “Subsequent Events”, to the Consolidated Financial Statements.



79


B. Liquidity and Capital Resources
Liquidity Overview
We require liquidity in order to fund our operations and meet our obligations. Short-term liquidity is required to purchase raw materials, parts and components for car production, as well as to fund selling, general, administrative, research and development, and other expenses. In addition to our general working capital and operational needs, we require cash for capital investments to support continuous product range renewal and expansion and, more recently, for research and development to transition our product portfolio to hybrid technology. We also make investments for initiatives to enhance manufacturing efficiency, improve capacity, ensure environmental compliance and carry out maintenance activities. We fund our capital expenditure primarily with cash generated from our operating activities.
We centrally manage our operating cash management, liquidity and cash flow requirements with the objective of ensuring efficient and effective management of our funds. We believe that our cash generation together with our current liquidity will be sufficient to meet our obligations and fund our business and capital expenditures.
See “Net Debt and Net Industrial Debt” below for additional details relating to our liquidity.


Cyclical Nature of our Cash Flows
Our working capital is subject to month to month fluctuations due to, among other things, production and sales volumes, our financial services activities, as wells as the timing of capital expenditure and tax payments. In particular, our inventory levels increase in the periods leading up to the launches of new models, during the phase out of existing models and at the end of the second quarter when our inventory levels are generally higher to support the summer plant shutdown.
We generally receive payment for cars between 30 and 40 days after the car is shipped (except when we provide dealer financing or sell invoices to a factor) while we tend to pay most suppliers between 60 and 90 days after we receive the raw materials or components. Additionally, we also receive advance payments from our customers, mainly for our hypercars and limited edition cars (and starting in the first quarter of 2019, our Icona cars). We maintain sufficient inventory of raw materials and components to ensure continuity of our production lines but delivery of most raw materials and components takes place monthly or more frequently in order to minimize inventories. The manufacture of one of our cars typically takes between 30 and 45 days, depending on the level of automation of the relevant production line, and the car is generally shipped to our dealers three to six days following the completion of production, although to ensure prompt deliveries in certain regions we may warehouse cars in local markets for longer periods of time. As a result of the above, including the advances received from customers for certain models, we generally receive payment for cars shipped before we are required to make payment for the raw materials and components used in manufacturing the cars.
Our investments for capital expenditure and research and development are, among other factors, influenced by the timing and the number of new model launches. Our development costs, as well as our other investments in capital expenditure, generally peak in periods when we develop a significant number of new models to renew or expand our product range. Our research and development costs are also influenced by the timing of research costs for our Formula 1 activities, for which expenditure is generally higher in the first and last quarters of the year. We significantly increased our capital expenditure in 2018 and 2019 to further our investments in hybrid technology and to support the expansion of our product range.
The payment of income taxes also affects our working capital. We have typically paid our income taxes in two advances, however, as a result of signing an agreement in September 2018 with the Italian Revenue Agency in relation to our application of the Patent Box tax regime for the years 2015 to 2019, our tax expense was significantly reduced and we did not pay the second advance in relation to 2018 taxes or the first advance in relation to 2019 taxes. In the fourth quarter of 2019, we paid the second advance in relation to 2019 taxes, which was significantly reduced as a result of the Patent Box tax benefit. The Group is progressing with the required activities to apply the Patent Box tax regime for the period from 2020 to 2024, in line with currently applicable tax regulations in Italy. See Note 10 “ Income Taxes ” to the Consolidated Financial Statements for additional details related to the Patent Box.


80


Cash Flows
The following table summarizes the cash flows from/(used in) operating, investing and financing activities for each of the years ended December 31, 2019 , 2018 and 2017 . For additional details of our cash flows, see our Consolidated Financial Statements included elsewhere in this document.
For the years ended December 31,
2019
2018
2017
(€ million)
Cash flows from operating activities
1,306

934

663

Cash flows used in investing activities
(701
)
(637
)
(379
)
Cash flows used in financing activities
(502
)
(152
)
(85
)
Translation exchange differences
1

1

(9
)
Total change in cash and cash equivalents
104

146

190

Operating Activities — Year Ended December 31, 2019
For the year ended December 31, 2019 , our cash flows from operating activities were €1,306 million , primarily the result of:
(i)
profit before tax of €875 million , adjusted to add back €352 million of depreciation and amortization expense, €42 million of net finance costs, €35 million of other non-cash expenses and income (including net gains on disposals of property, plant and equipment and intangible assets as well as non-cash result from investments) and €14 million in provisions accrued. Other non-cash expenses were primarily attributable to share-based compensation expense under the equity incentive plan; and
(ii)
€146 million of cash generated by the change in other operating assets and liabilities, primarily attributable to advances received for the Ferrari Monza SP1 and SP2.
These cash inflows were partially offset by:

(i)
€77 million of cash absorbed from receivables from financing activities driven by an increase in the financial services portfolio;
(ii)
€9 million of cash related to the net change in inventories, trade payables and trade receivables. In particular, the movement was attributable to (a) cash absorbed by inventory of €41 million and (b) cash absorbed by trade receivables of €22 million , which were both primarily driven by higher volumes, partially offset by (c) cash generated from trade payables of €54 million driven by higher capital expenditures and an increase in volumes;
(iii)
€39 million of net finance costs paid; and
(iv)
income tax paid of €33 million .
Operating Activities — Year Ended December 31, 2018
For the year ended December 31, 2018 , our cash flows from operating activities were €934 million , primarily the result of:
(i)
profit before tax of €803 million , adjusted to add back €289 million of depreciation and amortization expense, €30 million of other non-cash expenses and income (including net gains on disposals of property, plant and equipment and intangible assets as well as non-cash result from investments), €23 million of net finance costs and €16 million in provisions accrued. Other non-cash expenses were primarily attributable to share-based compensation expense under the equity incentive plan; and

81


(ii)
€62 million related to cash absorbed by the net change in inventories, trade payables and trade receivables. In particular, the movement was attributable to (a) cash generated from trade payables of €40 million driven by higher capital expenditures and an increase in volumes, (b) cash generated by trade receivables of €27 million , partially offset by (c) cash absorbed by inventory of €5 million .
These cash inflows were partially offset by:

(i)
€107 million related to cash absorbed from receivables from financing activities driven by an increase in the financial services portfolio in the U.S.;
(ii)
€83 million related to cash absorbed by the change in other operating assets and liabilities, primarily attributable to a decrease in advances for the LaFerrari Aperta and the Ferrari J50;
(iii)
€11 million of net finance costs paid; and
(iv)
income tax paid of €88 million , primarily related to the payment of the remaining balance of 2017 taxes as well as the first advance in relation to 2018 taxes.
Operating Activities — Year Ended December 31, 2017
For the year ended December 31, 2017 , our cash flows from operating activities were €663 million , primarily the result of:
(i)
profit before tax of €746 million , adjusted to add back €261 million of depreciation and amortization expense, €39 million related to other non-cash expenses and income (including net gains on disposal of property, plant and equipment and intangible assets as well as non-cash result from investments), €29 million of net finance costs and €13 million in provisions accrued. Other non-cash expenses were primarily attributable to share-based compensation expense under the equity incentive plan and equity-settled Non-Executive Directors’ compensation.
These cash inflows were partially offset by:
(i)
€73 million related to cash absorbed by the change in other operating assets and liabilities, primarily attributable to a decrease in advances for the LaFerrari Aperta in 2017, partially offset by advances received for the Ferrari J50;
(ii)
€61 million related to cash absorbed by the net change in inventories, trade payables and trade receivables. In particular, the movement was attributable to (a) cash absorbed by inventory of €88 million driven by projected volume growth in line with our 2018 production outlook, (b) cash absorbed by trade receivables of €2 million , partially offset by (c) cash generated from trade payables of €29 million , driven by an increase in volumes;
(iii)
€44 million related to cash absorbed from receivables from financing activities driven by an increase in the financial services portfolio in the U.S.;
(iv)
€32 million of net finance costs paid; and
(v)
income tax paid of €215 million , primarily related to the payment of the remaining balance of 2016 taxes and advances of 2017 taxes.
Investing Activities — Year Ended December 31, 2019
For the year ended December 31, 2019 , our net cash used in investing activities was €701 million , primarily the result of:
(i) € 354 million for additions to intangible assets, mainly related to externally acquired and internally generated development costs and, (ii) € 352 million of capital expenditures additions to property, plant and equipment, mainly related to plant and machinery for new models. These cash flows were partially offset by proceeds from the disposal

82


of property, plant and equipment. For a detailed analysis of additions to property, plant and equipment and intangible assets see “— Capital Expenditures ” below.
Investing Activities — Year Ended December 31, 2018
For the year ended December 31, 2018 , our net cash used in investing activities was €637 million , primarily the result of:
(i) €338 million for additions to intangible assets, mainly related to externally acquired and internally generated development costs and, (ii) €301 million of capital expenditures additions to property, plant and equipment, mainly related to plant and machinery for new models. These cash flows were partially offset by proceeds from the sale of property, plant and equipment. For a detailed analysis of additions to property, plant and equipment and intangible assets see “— Capital Expenditures ” below.
Investing Activities — Year Ended December 31, 2017
For the year ended December 31, 2017 , our net cash used in investing activities was €379 million , primarily the result of:
(i) €203 million for additions to intangible assets, mainly related to externally acquired and internally generated development costs and, (ii) €189 million of capital expenditures additions to property, plant and equipment, mainly related to plant and machinery for new models. These cash flows were partially offset by €8 million of proceeds from exercising the Delta Topco option and proceeds from the sale of property, plant and equipment. For a detailed analysis of additions to property, plant and equipment and intangible assets see “— Capital Expenditures ” below.
Financing Activities — Year Ended December 31, 2019
For the year ended December 31, 2019 , our net cash used in financing activities was €502 million , primarily the result of:
(i)
€387 million paid to repurchase common shares under the Company’s share repurchase program;
(ii)
€315 million related to the cash tender offer to repurchase an aggregate nominal amount of €200 million of the 2021 Bond and an aggregate nominal amount of €115 million of the 2023 Bond;
(iii)
€195 million of dividends paid, of which €2 million was to non-controlling interests; and
(iv)
€7 million related to the net change in bank borrowings and lease liabilities.

These cash outflows were partially offset by:

(i) €298 million of net proceeds from the Company’s issuance of 1.12 percent senior notes due August 2029 and 1.27 percent senior notes due August 2031, each having a principal amount of €150 million;

(ii) €92 million of proceeds net of repayments related to our revolving securitization programs in the U.S.; and
(iii) €12 million related to the net change in other debt.


83


Financing Activities — Year Ended December 31, 2018

For the year ended December 31, 2018 , net cash used in financing activities was €152 million , primarily the result of:

(i)
€133 million of dividends paid to owners of the parent;
(ii)
€100 million paid to repurchase common shares under the Company's share repurchase program;
(iii) €8 million related to the net change in other debt;
(iv)
€4 million related to the net change in bank borrowings; and
(v)
€2 million of dividends paid to non-controlling interests in our Chinese distributor, Ferrari International Cars Trading (Shanghai) Co. Ltd.
These cash outflows were partially offset by:

(i)
€95 million of proceeds net of repayments related to our revolving securitization programs in the U.S.

Financing Activities — Year Ended December 31, 2017
For the year ended December 31, 2017 , net cash used in financing activities was €85 million , primarily the result of:
(i)
€791 million related to the net change in bank borrowings, including €795 million related to the full repayment of a bank loan under a previous credit facility, primarily with the proceeds of the 2021 Bond;
(ii)
€120 million related to a cash distribution of reserves to holders of our common shares;
(iii)
€8 million related to the net change in other debt; and
(iv)
€1 million of dividends paid to non-controlling interests in our Chinese distributor, Ferrari International Cars Trading (Shanghai) Co. Ltd.
These cash outflows were partially offset by:

(i)
€694 million of net proceeds related to the issuance of the 2021 Bond, which were used, together with additional cash held, for the full repayment of a bank loan under a previous credit facility; and

(ii)
€141 million of proceeds net of repayments related to our revolving securitization programs in the U.S.




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Capital Expenditures
Capital expenditures are defined as cash outflows that result in additions to property, plant and equipment and intangible assets. Capital expenditures for the year ended December 31, 2019 were €706 million ( €639 million and €392 million for the years ended December 31, 2018 and 2017 , respectively).
The following table sets a forth a breakdown of capital expenditures by category for each of the years ended December 31, 2019 , 2018 and 2017 :
For the years ended December 31,
2019
2018
2017
(€ million)
Intangible assets
Externally acquired and internally generated development costs
330

318

185

Patents, concessions and licenses
18

14

12

Other intangible assets
6

6

6

Total intangible assets
354

338

203

Property, plant and equipment
Industrial buildings
16

15

5

Plant, machinery and equipment
176

82

132

Other assets
18

10

13

Advances and assets under construction
142

194

39

Total property, plant and equipment
352

301

189

Total capital expenditures
706

639

392

Intangible assets
Our total capital expenditures in intangible assets for the year ended December 31, 2019 were €354 million ( €338 million and €203 million for the years ended December 31, 2018 and 2017 , respectively).
The most significant investments relate to externally acquired and internally generated development costs. In particular, we make such investments to support the development of our current and future product offering. The capitalized development costs primarily include materials and personnel costs relating to engineering, design and development activities focused on content enhancement of existing cars and new models, including to transition our product portfolio to hybrid technology. We constantly invest in product development to ensure we can quickly and efficiently respond to market demand and/or technological breakthroughs and in order to maintain our position at the top of the luxury performance sports cars market.
The increase in externally acquired and internally generated development costs reflects the broadening of our product range and our ongoing investments in hybrid technology, which are necessary to provide continuing performance upgrades to our sports car customers and to help us capture the preferences of the urban, affluent purchasers of GT cars whom we are increasingly targeting.

For the year ended December 31, 2019 , we invested €330 million in externally acquired and internally generated development costs, of which €145 million related to development of models to be launched in future years and €185 million primarily related to the development of our current product portfolio as well as components.
For the year ended December 31, 2018 , we invested €318 million in externally acquired and internally generated development costs, of which €203 million related to development of models to be launched in future years and €115 million primarily related to the development of our current product portfolio as well as components.
For the year ended December 31, 2017 , we invested €185 million in externally acquired and internally generated development costs, of which €98 million related to development of models to be launched in future years and €87 million primarily related to the development of our current product portfolio as well as components.

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Property, plant and equipment

Our total capital expenditure in property, plant and equipment for the year ended December 31, 2019 was €352 million ( €301 million and €189 million for the years ended December 31, 2018 and 2017 , respectively).
Our most significant investments generally relate to plant, machinery and equipment, which amounted to €176 million for the year ended December 31, 2019 ( €82 million and €132 million for the years ended December 31, 2018 and 2017 , respectively) as well as advances and assets under construction, which amounted to €142 million for the year ended December 31, 2019 ( €194 million and €39 million for the years ended December 31, 2018 and 2017 , respectively). Our most significant investments primarily related to industrial tools needed for the production of cars and investments in car production lines (including those for models to be launched in future years), as well as expenditures related to hybridization and our personalization programs.
At December 31, 2019 , the Group had contractual commitments for the purchase of property, plant and equipment amounting to €105 million .

Net Debt and Net Industrial Debt
Due to different sources of cash flows used for the repayment of debt between industrial activities and financial services activities, and the different business structure and leverage implications, Net Industrial Debt, together with Net Debt, are the primary measures used by us to analyze our capital structure and financial leverage. We believe the presentation of Net Industrial Debt aids management and investors in their analysis of the Group’s financial position and financial performance and to compare with other companies. Net Industrial Debt is defined as total debt less cash and cash equivalents (Net Debt), further adjusted to exclude the debt and cash and cash equivalents related to our financial services activities (Net Debt of Financial Services Activities). Starting in 2019 we changed the definition of Net Industrial Debt. See “ Non-GAAP Financial Measures ” above for further information.
The following table sets forth a reconciliation of Net Debt and Net Industrial Debt at December 31, 2019 and 2018 .
At December 31,
2019
2018
(€ million)
Cash and cash equivalents
898

794

Total liquidity
898

794

Bonds and notes
(1,186
)
(1,198
)
Asset-backed financing (Securitizations)
(788
)
(683
)
Lease liabilities (1)
(60
)
—

Borrowings from banks
(33
)
(36
)
Other debt
(23
)
(10
)
Total debt
(2,090
)
(1,927
)
Net Debt (A)
(1,192
)
(1,133
)
Net Debt of Financial Services Activities (B)
(855
)
(763
)
Net Industrial Debt (A-B)
(337
)
(370
)
(1)
As a result of adopting IFRS 16 - Leases on January 1, 2019, the Group recognized right-of-use assets and related lease liabilities of €63 million in relation
to leases which had previously been classified as operating leases under IAS 17. For further details, see Note 2 “Significant Accounting Policies” to the Consolidated Financial Statements included elsewhere in this document.
Following a cash tender offer, on July 16, 2019 the Company executed a partial repurchase of the 2023 Bond and 2021 Bond for aggregate nominal amounts of €115 million and €200 million respectively. On July 31, 2019, the Company issued 1.12 percent senior notes due August 2029 (“2029 Notes”) and 1.27 percent senior notes due August 2031 (“2031 Notes”) through a private placement to certain US institutional investors, each having a principal of €150 million. The net proceeds from the issuances amounted to €298 million.

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For further details on total debt, see Note 24 “Debt” to the Consolidated Financial Statements included elsewhere in this document.

Cash and cash equivalents
Cash and cash equivalents were €898 million at December 31, 2019 compared to €794 million at December 31, 2018 . See “Cash Flows” above for further details.
Approximately 77 percent of our cash and cash equivalents were denominated in Euro at December 31, 2019 (approximately 78 percent at December 31, 2018 ). Our cash and cash equivalents denominated in currencies other than the Euro are available mostly to Ferrari S.p.A. and certain subsidiaries which operate in areas other than Europe. Cash held in such countries may be subject to transfer restrictions depending on the jurisdictions in which these subsidiaries operate. In particular, cash held in China (including in foreign currencies), which amounted to €115 million at December 31, 2019 ( €78 million at December 31, 2018 ), is subject to certain repatriation restrictions and may only be repatriated as dividends or capital distributions. We do not currently believe that such transfer restrictions have an adverse impact on our ability to meet our liquidity requirements.
The following table sets forth an analysis of the currencies in which our cash and cash equivalents were denominated at the dates presented:
At December 31,
2019
2018
(€ million)
Euro
690


616

Chinese Yuan
110


73

U.S. Dollar
63


50

Japanese Yen
12


24

Other currencies
23


31

Total
898


794

Cash collected from the settlement of receivables or lines of credit pledged as collateral is subject to certain restrictions regarding its use and is principally applied to repay principal and interest of the related funding. Such cash amounted to €28 million and €26 million at December 31, 2019 and 2018 , respectively.
Total Available Liquidity
Our total available liquidity (defined as cash and cash equivalents plus undrawn committed credit lines) at December 31, 2019 was € 1,248 million (€ 1,294 million at December 31, 2018 ).
The following table summarizes our total available liquidity:
At December 31,
2019
2018
(€ million)
Cash and cash equivalents
898

794

Undrawn committed credit lines
350

500

Total available liquidity
1,248

1,294

The undrawn committed credit lines consist of a revolving credit facility. The revolving credit facility in place at December 31, 2018, which was due to mature in November 2020, was canceled in December 2019 and replaced with a new €350 million unsecured committed revolving credit facility (the “RCF”), which has a five-year tenor with two further one-year extension options on the Company’s request and the approval of each participating bank. For further details see Note 24 “Debt” to the Consolidated Financial Statements included elsewhere in this document.

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Free Cash Flow and Free Cash Flow from Industrial Activities
Free Cash Flow and Free Cash Flow from Industrial Activities are two of our primary performance indicators to measure the Group’s performance. These measures are presented by management to aid investors in their analysis of the Group’s financial performance and to compare the Group’s financial performance with that of other companies. Free Cash Flow is defined as cash flows from operating activities less investments in property, plant and equipment and intangible assets. Free Cash Flow from Industrial Activities is defined as Free Cash Flow adjusted to exclude the operating cash flow from our financial services activities (Free Cash Flow from Financial Services Activities). Starting in 2019 we changed the definition of Free Cash Flow and Free Cash Flow from Industrial Activities. See “ Non-GAAP Financial Measures ” above for further information.
The following table sets forth our Free Cash Flow and Free Cash Flow from Industrial Activities for the years ended December 31, 2019 , 2018 and 2017 .
For the years ended December 31,
2019
2018
2017
(€ million)
Cash flows from operating activities
1,306

934

663

Investments in property, plant and equipment and intangible assets
(706
)
(639
)
(392
)
Free Cash Flow
600

295

271

Free Cash Flow from Financial Services Activities
(75
)
(80
)
(37
)
Free Cash Flow from Industrial Activities
675

375

308

Free Cash Flow for the year ended December 31, 2019 was €600 million compared to €295 million for the year ended December 31, 2018 and €271 million for the year ended December 31, 2017 . For an explanation of the drivers in Free Cash Flow see “Cash Flows” above.
Free Cash Flow from Industrial Activities for the year ended December 31, 2019 was €675 million , compared to €375 million for the year ended December 31, 2018 . The increase was primarily attributable to an increase in Adjusted EBITDA, a positive change in cash generated from other operating assets and liabilities, driven by advances received for the Ferrari Monza SP1 and SP2, as well as a decrease in income taxes paid, partially offset by an increase in capital expenditures.
Free Cash Flow from Industrial Activities for the year ended December 31, 2018 was €375 million compared to €308 million for the year ended December 31, 2017 . The increase was primarily attributable to an increase in Adjusted EBITDA, a decrease in tax payments due to the Patent Box benefit and the positive impact from changes in working capital, partially offset by an increase in capital expenditures.
C. Research and Development, Patents and Licenses, etc.
Research and Development
For a description of the Company’s research and development policies, see “Item 5. Operating and Financial Review and Prospects—Trends, Uncertainties and Opportunities—Research, Development and Product Lifecycle ”. For a detailed analysis of research and development costs, see “Item 5.A. Operating Results—Results of Operations—Research and development costs ”.
D. Trend Information
Please refer to “Item 5 . Operating and Financial Review and Prospects—Trends, Uncertainties and Opportunities ” for information required by this item.
E. Off Balance Sheet Arrangements
We have entered into various off-balance sheet arrangements with unconsolidated third parties in the ordinary course of business. For additional information see Note 29 “ Commitments ” to our Consolidated Financial Statements included elsewhere in this document.

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F. Tabular Disclosure of Contractual Obligations
The following table summarizes payments due under our significant contractual commitments at December 31, 2019 :
Payments due by period
Less than 1 year
1 to 3 years
3 to 5 years
After
5 years
Total
(€ million)
Long-term debt (1)
340

918

416

300

1,974

Interest on long-term debt (2)
25

28

9

20

82

Lease obligations (3)
21

17

11

15

64

Unconditional minimum purchase obligations (4)
72

17

4

—

93

Purchase obligations (5)
105

—

—

—

105

Total contractual obligations
563

980

440

335

2,318

______________________________
(1)
Amounts presented relate to the principal amounts of long-term debt, excluding lease liabilities and the related interest expense that will be paid when due. For additional information see Note 24 “Debt” to our Consolidated Financial Statements included elsewhere in this document. The table above does not include short-term debt obligations.
(2)
Amounts include interest payments based on contractual terms and current interest rates on our long-term debt. Interest rates based on variable rates included above were determined using the current rates in effect at December 31, 2019 .
(3)
Lease obligations mainly relate to leases for Ferrari stores, industrial buildings and certain assets used in our business.
(4)
Unconditional minimum purchase obligations relate to our unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services from suppliers with fixed and determinable price provisions. From time to time, in the ordinary course of our business, we enter into various arrangements with key suppliers in order to establish strategic and technological advantages. In particular, such agreements primarily relate to the purchase of research and development services and to a lesser extent, tooling obligations. This amount also includes unconditional purchase obligations to purchase a minimum quantity of goods and/or services in connection with certain of our sponsorship contracts.
(5)
Purchase obligations represent obligations to purchase property, plant and equipment.
The long-term debt obligations reflected in the table above can be reconciled to the amount in the statement of financial position at December 31, 2019 as follows:
Amount
(€ million)
Debt
2,090

Short-term debt obligations
(54
)
Lease liabilities
(60
)
Amortized cost effects
(2
)
Long-term debt
1,974

Pension, post-employment benefits and other provisions for employees We provide post-employment benefits for certain of our active employees and retirees. We classify these benefits on the basis of the type of benefit provided and in particular as defined contribution plans, defined benefit obligations and other provisions for employees. At December 31, 2019 the liability for such obligations amounted to €88 million ( €87 million at December 31, 2018 ). See Note 22 “Employee benefits” to the Consolidated Financial Statements included elsewhere in this document.

G. Safe Harbor

See section entitled “ Forward-Looking Statements ” at the beginning of this report.


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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management
Set forth below is the name, year of birth and position of each of the persons currently serving as directors of Ferrari N.V. Unless otherwise indicated, the business address of each person listed below will be c/o Ferrari, Via Abetone Inferiore n. 4, I-41053 Maranello (MO), Italy. The current Board of Directors of Ferrari was appointed effective as of April 12, 2019 and its term of office will expire on the day the next Annual General Meeting of Shareholders is held, which is currently expected to be held on April 16, 2020.
Name
Year of Birth
Position
John Elkann
1976
Executive Chairman and Executive Director
Louis C. Camilleri
1955
Chief Executive Officer and Executive Director
Piero Ferrari
1945
Vice Chairman and Non-Executive Director
Sergio Duca
1947
Senior Non-Executive Director
Delphine Arnault
1975
Non-Executive Director
Giuseppina Capaldo
1969
Non-Executive Director
Eddy Cue
1964
Non-Executive Director
Maria Patrizia Grieco
1952
Non-Executive Director
Adam Keswick
1973
Non-Executive Director
Elena Zambon
1964
Non-Executive Director
Summary biographies for persons who are currently directors of Ferrari are included below:

John Elkann. Mr. John Elkann is Executive Chairman and Executive Director of Ferrari N.V., Chairman and Chief Executive Officer of EXOR and Chairman of Fiat Chrysler Automobiles N.V.. Mr. Elkann obtained a scientific baccalaureate from the Lycée Victor Duruy in Paris and graduated in Engineering from Politecnico, the Engineering University of Turin. While at university, he gained work experience in various companies of the Fiat Group in the UK and Poland (manufacturing) as well as in France (sales and marketing). He started his professional career in 2001 at General Electric as a member of the Corporate Audit Staff, with assignments in Asia, the USA and Europe. John Elkann is Chairman of Giovanni Agnelli B.V. He is Vice Chairman of GEDI Gruppo Editoriale S.p.A., board member of The Economist Group and board member of PartnerRe Ltd. Mr. Elkann is a trustee of MoMA. He also serves as Chairman of the Giovanni Agnelli Foundation.
Louis C. Camilleri. Mr. Camilleri is Chief Executive Officer and Executive Director of Ferrari N.V. Mr. Camilleri currently serves as Chairman of the Board of Philip Morris International Inc. (“PMI”). From March 2008 to May 2013, he served as Chairman and Chief Executive Officer of PMI. From April 2002 and August 2002 until March 2008, he was Chief Executive Officer and Chairman of Altria Group, Inc. (formerly Philip Morris Companies, Inc.), respectively. From November 1996 to April 2002, he served as Senior Vice President and Chief Financial Officer of Altria Group, Inc. He had been employed continuously by Altria Group, Inc. and its subsidiaries (including PMI) in various capacities since 1978. Mr. Camilleri served on the Board of Directors of América Móvil, S.A.B. de C.V. from April 2011 to March 2019, and previously served on the Board of Telmex International SAB from December 2009. Mr. Camilleri was President and CEO of Kraft Foods International in 1995 and was a Director of Kraft Foods Inc. (“Kraft”) from March 2001 to December 2007 and was Kraft’s Chairman from September 2002 to March 2007. Mr. Camilleri received a degree in Economics and Business Administration from HEC Lausanne, the Faculty of Business & Economics of the University of Lausanne (Switzerland).
Piero Ferrari. Mr. Piero Ferrari is Vice Chairman and Non-Executive Director of Ferrari N.V. and he has been Vice Chairman of Ferrari S.p.A. since 1988. He also serves as Chairman of HPE-COXA, is board member and Vice President of Ferretti Group and a board member and Vice President of CRN Ancona (Ferretti Group). He was President of Piaggio Aero Industries S.p.A. from 1998 to 2014 and served as Chairman of the Italian Motor Sport Commission (CSAI) from 1998 to 2001 and BA SERVICE from 2000 to 2015. He was also a board member and Vice President of Banca Popolare dell’Emilia Romagna in Modena from 2002 to 2011 and from 2011 to 2014 respectively. The son of Ferrari’s founder Enzo Ferrari, Mr. Piero Ferrari covered a variety of management positions in the motor sport division of Ferrari from 1970 to 1988 with increasing responsibilities.

90


His first position with Ferrari dates back to 1965 working on the production of the Dino 206 Competizione racing car. Mr. Piero Ferrari received an honorary degree in Aerospace Engineering from the University of Naples Federico II in 2004 and an Honorary Degree in Mechanical Engineering from the University of Modena and Reggio Emilia in 2005. In 2004, Mr. Piero Ferrari was awarded the title of Cavaliere del Lavoro.
Sergio Duca. Mr. Duca is Senior Non-Executive Director and Chairman of the Board of Directors of Ferrari N.V. Mr. Duca is a member of the Statutory Auditors of BasicNet S.p.A. since 2017 and a director of Tofaş Türk Otomobil Fabrikası Anonim Şirketi, as well as the Chairperson of the corporate governance committee, member of the risk management committee and member of the audit committee of Tofaş Türk Otomobil Fabrikası Anonim Şirketi. He also serves as member of the board of Nedcommunity association since May 2019 and Chairman of the board of auditors of the Fondazione per la Scuola of Compagnia di San Paolo and ISPI (Institute for the Study of International Politics), as well as a member of the board of auditors of the Intesa San Paolo Foundation Onlus. Mr. Duca has previously served as Chairman of the Board of Statutory Auditors of Enel S.p.A. from April 2010 until May 2019, Chairman of the Board of Directors of Orizzonte SGR S.p.A. from 2008 until 2016, Chairman of the Board of Statutory Auditors of Exor S.p.A. until May 2015, Chairman of the Board of Statutory Auditors and effective auditor of GTech until April 2015, member of the Board of ASTM S.p.A. and Chairman of the Audit Committee of ASTM S.p.A. from 2010 until 2013, Chairman of the Board of Statutory Auditors of Tosetti Value SIM and an independent director of Sella Gestione SGR until April 2010. From 1997 until July 2007, Mr. Duca was the Chairman of PricewaterhouseCoopers S.p.A. In addition, he has previously served as Chairman of the board of auditors of the Silvio Tronchetti Provera Foundation, Chairman of the board of auditors of Compagnia di San Paolo until May 2016, member of the Edison Foundation’s advisory board and the University Bocconi in Milan’s development committee, as well as Chairman of the Bocconi’s Alumni Association’s board of auditors and a member of the board of auditors of the ANDAF (Italian Association of Chief Financial Officers). As a certified chartered accountant and auditor, he acquired broad experience through the PricewaterhouseCoopers network as the external auditor of a number of significant Italian listed companies. Mr. Duca graduated with honors in Economics and Business from University Bocconi in Milan.
Delphine Arnault. Delphine Arnault graduated from the EDHEC Business School and the London School of Economics. She began her career at McKinsey & Company, the global management consultancy firm, where she was a Consultant for two years. In 2001, she joined the Executive Committee of Christian Dior Couture where she directed several product lines. She was appointed Deputy General Manager of Christian Dior Couture in 2008 and in September 2013 Deputy General Manager of Louis Vuitton Malletier. She has been a main board director of LVMH Moët Hennessy Louis Vuitton SE since 2003. Delphine was appointed to the board of Château Cheval Blanc, the Saint-Emilion premier grand cru classé in 2008. In 2002 she joined the board of Loewe, the celebrated Spanish leather goods company, and was appointed to Pucci’s board of directors in 2007. She was appointed to the boards of Céline in December 2011 and Christian Dior SE in April 2012. Delphine Arnault previously served as a director of both Havas and 21st Century Fox from 2013 to 2019.
Giuseppina Capaldo. Ms. Capaldo is Full Professor of Private Law, at “La Sapienza” University of Rome. She is an independent member of the Board of Directors of Salini Impregilo S.p.A. (2012-present) and TIM S.p.A. (2018-present). She was an independent member of the Board of Directors of Exor S.p.A. from 2012 to 2015, Credito Fondiario S.p.A. (2014-2017) and Banca Monte dei Paschi di Siena S.p.A (December 2017-2018). She was a member of the Board of Directors of Ariscom S.p.A. (an Italian insurance company) from 2012-2015 and A.D.I.R. - Assicurazioni di Roma (2006-2010). She collaborated with the Macchi di Cellere Gangemi law firm in the Banking and Finance, Corporate and M&A sectors (2004-2007). She has been Deputy Rector for Resource Planning and Assets (since 2014) at La Sapienza University; Director of LLM “Financial Markets Law” (since 2009). Previously, she served as Deputy Rector for Strategic Planning (2008-2014); Head of Department of “Law and Business” (2007-2013); and Director of PhD “Contract Law and Business” (2007-2011). Ms. Capaldo has a degree in Economics and a degree in Law from “La Sapienza” University of Rome, has been a licensed certified public accountant since 1992 and is listed in the Register of Independent Auditors (since 1999). In addition, Ms. Capaldo has been qualified to practice law in Italy since 2003. She authored several publications in the areas of contract law, insurance law, financial law and market legal theory.

Eddy Cue. Mr. Cue currently serves as Apple Inc.’s Senior Vice President of Internet Software and Services. He joined Apple in 1989 and oversees Apple’s industry-leading content stores including the iTunes Store, the App Store and the iBooks Store, as well as Apple Pay, Siri, Maps, iAd, the iCloud services, and Apple’s productivity and creativity apps. Mr. Cue earned a bachelor’s degree in Computer Science and Economics from Duke University. He was recognized by renowned cancer research center City of Hope with their 2014 Spirit of Life Award, honoring an individual whose work has fundamentally impacted the music, film and entertainment industry.

91


Maria Patrizia Grieco . Mrs. Maria Patrizia Grieco has been the Chairman of the board of directors of Enel since May 2014. After graduating in law at the University of Milan, she started her career in 1977 at Italtel, where in 1994 she became chief of the Legal and General Affairs directorate. In 1999, she was appointed General Manager to re-organize and reposition the company, and in 2002 she became Chief Executive Officer. Subsequently, she held the positions of Chief Executive Officer of Siemens Informatica, Partner of Value Partners and Chief Executive Officer of the Group Value Team (today NTT Data). From 2008 to 2013, she was Chief Executive Officer of Olivetti, where she also held the role of Chairman from 2011. She has been a director of Fiat Industrial and CIR and she is currently on the boards of Anima Holding, Ferrari and Amplifon. Mrs. Grieco is also a member of the steering committee of Assonime and of the board of directors of Bocconi University. Maria Patrizia Grieco was appointed Chairman of the Italian Corporate Governance Committee in 2017. The purpose of the Committee is the promotion of good corporate governance practices of Italian listed companies.
Adam Keswick . Mr. Keswick joined the Board in 2007 and was Deputy Managing Director of Jardine Matheson from 2012 to 2016. He was appointed chairman of Matheson & Co. in August 2016. He has held a number of executive positions since joining the Jardine Matheson Group from N M Rothschild & Sons in 2001, including group strategy director and, thereafter, group managing director of Jardine Cycle & Carriage between 2003 and 2007. Mr Keswick is a director of Dairy Farm, Hongkong Land, Jardine Strategic and Mandarin Oriental. He is also a Director of Ferrari N.V., and Vice-Chairman of the Supervisory Board of Rothschild & Co, and is a Director of Yabuli China Entrepreneurs Forum. Mr Keswick attended Eaton College and Edinburgh University where he received his Master of Arts degree in 1995.
Elena Zambon. Elena Zambon is President of Zambon SpA - Pharmaceutical Multinational established in 1906 in Vicenza (Italy) and present in 20 countries with subsidiaries in Europe, America and Asia - on top of being President of Fondazione Zoé - Zambon Open Education. Elena is a member of the Board of Directors of UniCredit, Ferrari N.V. and IIT- Istituto Italiano di Tecnologia; former member of the Board of Directors of Italcementi SpA, Fondo Strategico Italiano, Italian sovereign fund, Akros Finanziaria S.p.A. and Salvagnini SpA. She is Board Member and Vice Chair of FBN - Family Business Network, and Honorary President of AIdAF - Italian Family Business. She is also Vice President of Aspen Institute Italia; member of the Advisory Board of Politecnico di Milano School of Management and member of the Bocconi University Campaign Board; Board Member of the Centro Internazionale di Studi di Architettura Andrea Palladio. After obtaining the degree in Business Economics at Bocconi University, Elena joined Citibank N.A. In 1994 she founded the Family Office of the Zambon family, which in 2000 was transformed into a Multi Family Office, creating Secofind, of which she is still Honorary President. Elena Zambon has been knighted by the President of Italy, she is an Accademico Olimpico and she received the “Olivettiano Entrepreneur” Award, the “Marisa Belisario” Award, the “Masi Prize” and the “Leonardo Prize”.

92


Senior Management Team
On certain key industrial matters, the CEO is supported by the Senior Management Team (the “SMT”), which is responsible for reviewing the operating performance of the business, collaborating on certain operational matters, supporting the Chief Executive Officer with his tasks, and executing decisions of the Board of Directors and the day-to-day management of the Company, primarily as it relates to the operational management. Set forth below are the names, year of birth and position of each of the members of the SMT of Ferrari. Unless otherwise indicated, the business address of each person listed below will be c/o Ferrari, Via Abetone Inferiore n. 4, I-41053 Maranello (MO), Italy.

Name
Year of Birth
Position
Louis C. Camilleri
1955
Chief Executive Officer and Executive Director
Antonio Picca Piccon
1964
Chief Financial Officer
Michele Antoniazzi
1969
Chief Human Resources Officer
Mattia Binotto
1969
Managing Director Gestione Sportiva and Team Principal Scuderia Ferrari
Nicola Boari
1970
Chief Brand Diversification Officer
Carlo Daneo
1968
General Counsel
Enrico Galliera
1966
Chief Marketing and Commercial Officer
Michael Hugo Leiters
1971
Chief Technology Officer
Flavio Manzoni
1965
Chief Design Officer
Jane Reeve
1959
Chief Communication Officer
Vincenzo Regazzoni
1963
Chief Manufacturing Officer
Biographies for the members of the SMT of Ferrari are included below:
Louis C. Camilleri. See above.
Antonio Picca Piccon. Mr. Picca Piccon was appointed as our Chief Financial Officer in July 2018. Before joining Ferrari, he held the position of CFO in Ariston Thermo Group, including responsibilities for Legal and Corporate Affairs and ICT, since November 2014. Prior to such assignment he spent 15 years within Fiat Group and Fiat Chrysler Automobiles, where he covered several senior roles in finance and financial services, including CFO of Iveco Group, CEO of FGA Capital (now FCA Bank) and Group Treasurer and Head of Financial Services for FCA. He started his career in banking, in various positions within Sanpaolo IMI group (now part of Banca Intesa). He also served as a member of the Board of Directors of Ferrari, Fiat Group Automobiles, Magneti Marelli, Maserati and Teksid. Mr. Picca Piccon graduated in Economics and Business Administration from the University of Turin and holds an MPhil in Economics from the University of Cambridge.
Michele Antoniazzi . Mr. Michele Antoniazzi was appointed Chief Human Resources Officer in April 2016. Before joining Ferrari, he held several senior roles in Magneti Marelli, becoming the Human Resources Director of the Automotive Lighting business line in 2012. Prior to that experience he was the Human Resources Director of the Suspension Systems business line from 2009 to 2012 and the Head of Organizational Development for the Sector Magneti Marelli from 2006 to 2012. He graduated from the University of Padova with a degree in Industrial and Organizational Psychology.
Mattia Binotto. Mr. Binotto was appointed as Managing Director Gestione Sportiva and Team Principal Scuderia Ferrari on January 7, 2019. Having graduated in Mechanical Engineering from the Lausanne Polytechnic in 1994, he then obtained a Masters in Motor Vehicle Engineering in Modena. In 1995, he joined the Scuderia Ferrari test team as a Test Engine Engineer and fulfilled the same role with the race team from 1997 to 2003. In 2004, he became a Race Engine Engineer and from 2007 Mr. Binotto took on the role of Chief Engineer, race and assembly, moving on in 2009 to Head of Engine and KERS Operations. Having been appointed Deputy Director, Engine and Electronics in October 2013, Mr. Binotto subsequently took on the role of Chief Operating Officer, Power Unit. On July 27, 2016, he was appointed Chief Technical Officer of Scuderia Ferrari.

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Nicola Boari. Mr. Boari was appointed as our Chief Brand Diversification Officer in September 2018. Previously he was Head of Product Marketing and Market Intelligence of Ferrari since March 2010. Prior to joining Ferrari he worked at Indesit Company from 2004 to 2010, where he held various positions including product marketing director, responsible for product development for all product lines. From 1998 to 2004 he was a manager with the Boston Consulting Group. Mr. Boari holds a master in finance and economics from the London School of Economics and a PhD in economics from the University of Ancona, as well as a degree in finance and economics from the University of Bologna.
Carlo Daneo. Mr. Daneo was appointed as our General Counsel in July 2015, as a member of the Board of Directors of Ferrari North America Inc. in February 2017, as a member of the Supervisory Body of Ferrari S.p.A. in August 2015 and Data Protection Officer of the Ferrari Group in February 2018. Prior to joining Ferrari, he held several senior positions in the Fiat Chrysler Automobiles (FCA) legal area, including the role of Senior Vice President and Legal Counsel in Finance and Financial Services of FCA from 2008 until 2015 and the role of General Counsel in Fiat Chrysler Finance S.p.A. (previously Fiat Finance S.p.A.) from 2003 to 2015. He started his career in 1995 with a work experience at the United Nations at the International Trade Center Unctad/WTO in Geneva and since 1996 in the legal profession in law firms with experience in the Corporate, Finance and Capital Markets areas in primary international law firms in Italy and abroad until 2003. He graduated in Law at the University of Turin, did a master’s degree organized by the University Institute of European Studies in international law at the International Labour Organization of Turin and obtained the title of Lawyer.
Enrico Galliera. Mr. Galliera was appointed as our Chief Marketing and Commercial Officer in April 2010. From 1990 to 2010 he worked for Barilla S.p.A, where he held multiple positions, ultimately becoming Europe and export market unit director. During his time at Barilla S.p.A., Mr. Galliera also served as director of customer business development for Europe, general manager for South West Europe and trade marketing director for Italy. Mr. Galliera holds a degree in economics and political science from the University of Parma.
Michael Hugo Leiters. Mr. Leiters was appointed as our Chief Technology Officer in January 2014. Prior to joining Ferrari he worked at Porsche AG from 2000 to 2013 where he held multiple positions, ultimately becoming head of the SUV product line in 2010. From 1996 to 2000, he served as an engineer and manager at the Institut fur Produktionstechnologie in Aachen, Germany. Mr. Leiters holds an engineering diploma and an engineering doctorate from RWTH-Aachen.
Flavio Manzoni. Mr. Manzoni was appointed as our Chief Design Officer in January 2010. From 2007 to 2010 he was Director of Creative Design at the Volkswagen Group where he was involved in designing most of the Skoda, Bentley, Bugatti and Volkswagen recent cars as well as redefining the aesthetic philosophy of these brands. From 2001 to 2006, he worked at Fiat Group as Head of Design for Lancia, Fiat and LCV. He has also held design positions at Lancia and Seat. Mr. Manzoni holds a degree in architecture with a thesis in industrial design from the University of Florence.
Jane Reeve . Ms. Reeve was appointed Chief Communication Officer in May 2019. Her career has spanned a range of senior management and Board positions in international communication groups including TBWA, Wunderman, Interbrand, RMG Connect, which she headed up as CEO from 2003 until 2010, and J. Walter Thomson Italy, where she was Chairman and CEO from 2010 until 2013. In January 2014 she was appointed as first ever CEO of the Italian Fashion Council (Camera Nazionale della Moda Italiana) until September 2015. Ms. Reeve was appointed Regional Director Europe & Chairman of J. Walter Thomson Italy from 2016 until April 2019. Ms. Reeve has fulfilled many institutional roles in the Italian industry: she has been the Italian representative for the European Federation of Sales Promotion, a jury member of Cannes Direct and Eurobest Direct & Integrated Awards and representative for AssoComunicazione (Italian communications association) at the European Advertising Council Association. Ms. Reeve holds a degree in English Language and Literature at Oxford University.

Vincenzo Regazzoni. Mr. Regazzoni was appointed as our Chief Manufacturing Officer in March 2015. Prior to his appointment to that role, he held various senior production and industrial performance roles at Ferrari and Maserati, including head of Technologies and Infrastructure from 2010 to 2015 and head of Process/Product Technologies from 2003 to 2010. Prior to joining Ferrari in 1998, he held production roles at Varian S.p.A. and Fiat Auto S.p.A. Mr. Regazzoni has a degree in mechanical engineering with a specialization in management systems and plant from Tor Vergata University in Rome.



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B. Compensation

Introduction
The description below summarizes the guidelines and the principles followed by Ferrari in order to define and implement the remuneration policy applicable to the executive directors and non-executive directors of the Company, and members of the SMT. In addition, this section provides the remuneration paid to these individuals for the year ended December 31, 2019. The form and amount of compensation received by the directors of Ferrari for the year ended December 31, 2019 was determined in accordance with the remuneration policy. The Compensation Committee oversees the remuneration policy, remuneration plans and practices of Ferrari and recommends changes when appropriate. The Committee is solely comprised of non-executive directors from the Board of Directors who are independent pursuant to the Dutch Corporate Governance Code. Through this document, Ferrari aims to provide its stakeholders with a high level of disclosure in order to strengthen the trust they and the market place in Ferrari, and provide them with the tools to assess the Company’s remuneration principles and exercise shareholders’ rights in an informed manner. The Company may from time to time amend the remuneration policy, subject to our shareholders’ approval when necessary.
This Compensation Report consists of two sections:
1.
Remuneration strategy: our current remuneration policy (which is available on our corporate website) governs compensation for both executive and non-executive directors. In 2019, Ferrari revised some remuneration features in order to provide an enhanced alignment with shareholders’ interests and long-term sustainability of our business.
Our current remuneration strategy further strengthens such alignment and adopts some new features to reflect developing best practices in the Dutch Corporate Governance Code.
2.
Implementation of remuneration strategy: details how remuneration features have been implemented during the 2019 financial year and actual remuneration received by each executive and non-executive director. In 2019, there was no deviation from the Remuneration Policy.


1. Remuneration Strategy for the 2019 Financial Year
Remuneration principles
The main goal of Ferrari’s remuneration strategy is to develop a system which consistently supports the business strategy and value creation for all shareholders, establishing a compensation structure that allows us to attract and retain the most highly qualified executive talent and motivate such executives to achieve business and financial goals that create long-term value for shareholders in a manner consistent with our core business and leadership values and taking into account the social context around the Company, as outlined below.


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The main principles of Ferrari’s remuneration policy are outlined in the chart below:
priofferrariremunerata02.jpg
Overview of remuneration elements
The structure of the remuneration applicable to our executive directors, non-executive directors and other key management under Ferrari’s remuneration policy consists of some or all of the following elements: fixed remuneration, short-term incentives, long-term incentives and non-monetary benefits. The purpose and features of the different elements of our remuneration structure for 2019 are outlined in the table below:
Component
Purpose
Terms and Conditions
Amounts
Remuneration Structure
- Attract, retain and motivate highly qualified executives to achieve challenging results
- Competitively position our compensation package compared to the compensation of comparable companies, mainly represented by the Peer Group and companies that compete for similar talent
- Reinforce our performance driven culture and meritocracy
Ferrari’s remuneration structure is organized as follows:
- Fixed remuneration
- Short-term incentives
- Long-term incentives
- Non-monetary benefits
- Offer a highly competitive compensation package compared to the reference market
- Reference Market: Roles with the same managerial complexity and responsibilities within comparable companies, including those represented by the Peer Group

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Component
Purpose
Terms and Conditions
Amounts
Fixed Remuneration
Reward skills, contribution and experience required for the position held
- Executive Chairman: Fixed remuneration is set in relation to the delegated powers assigned over the term and positions held in line with the reference market
- CEO: Fixed remuneration is set in relation to the delegated powers assigned over the term and positions held in line with the Reference Market
- SMT Members: annual remuneration is based on the role assigned, in line with reference market offering for roles of similar responsibility and complexity
- Executive Chairman: €250,000 annually
- CEO: €700,000 annually
- Non-Executive Directors: $75,000 annually
- SMT Members: the fixed remuneration is related to the position held and the responsibilities attributed, as well as the experience and strategic nature of the resource
Short-Term Incentive Plan
- Achieve the annual financial, operational and other targets and additional business priorities
- Motivate and guide executives’ activities over the short-term period
2019 Short-term incentives targets:
- Based on achievement of annually predetermined performance objectives
- Annual financial, operational and other identified objectives
- Executive Chairman: The Chairman compensation package for 2019 did not include short-term incentives
- CEO: The CEO compensation package for 2019 did not include short-term incentives
- SMT Members: variable incentive percentage of fixed remuneration based on the position held

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Component
Purpose
Terms and Conditions
Amounts
Long-Term Incentive Plan
- Align the behavior of executives critical to the business with shareholders’ interests
- Motivate executives to achieve long-term strategic objectives
- Enhance retention of key resources
- Equity awards to promote creation of value for the shareholders
- PSUs and RSUs: vesting in installments
- PSUs: 50% linked to TSR compared to Peer Group, 30% linked to EBITDA; 20% linked to a qualitative factor related to the sustainability and innovation of business
- Executive Chairman: Target pay-opportunity is 300% and maximum pay-opportunity is 400% of base salary, in accordance with the long-term shareholder value creation and pay for performance principles of Ferrari ’ s remuneration policy
- CEO: Target pay-opportunity is 643% and maximum pay-opportunity is 857% of base salary
- SMT Members: variable incentive percentage of fixed remuneration based on the position held
Non-monetary Benefits
- Retain executives through a total reward approach
- Enhance executive and employee security and productivity
Represent an integral part of the remuneration package with welfare and retirement-related benefits
Customary fringe benefits such as company cars and drivers, personal/home security, medical insurance, accident insurance, tax preparation and financial counseling
Share Ownership Guidelines
- Ensures alignment with shareholders’ interests

- Executive Directors, other SMT members, other senior leaders and key employees are expected to build up share ownership over a period of 5 years

- Executive Chairman and CEO: 6 times net base salary
- SMT Members: 3 times net base salary



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Executive directors’ pay-mix
In light of the foregoing considerations, our Executive Chairman’s and CEO’s compensation packages are structured as follows:
chairmanamounts.jpg
ceoamounts.jpg
As shown in the charts above, the Chairman and CEO compensation packages for 2019 do not include short-term incentives.
Our remuneration policy is aligned with Dutch law and the Dutch Corporate Governance Code. In particular, the Dutch Corporate Governance Code requires listed companies to disclose certain information about the compensation of their Board and Executive Directors. Through this remuneration strategy, Ferrari fulfills the requirements of the Code ensuring full transparency with our shareholders.

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2019 remuneration of executive directors and SMT members
The Board of Directors determines the compensation for our executive directors following the recommendation of the Compensation Committee and with reference to the remuneration policy. The compensation structure for executive directors and SMT members includes a fixed component and a variable component based on short and long-term performance. We believe that this compensation structure promotes the interests of Ferrari in the short and the long-term and is designed to encourage the executive directors and SMT members to act in the best interests of Ferrari. In determining the level and structure of the compensation of the executive directors, the non-executive directors will take into account, among other things, Ferrari’s financial and operational results and other business objectives, while considering the executive directors’ view concerning the level and structure of their own remuneration. Performance targets are set by the Compensation Committee to be both achievable and stretching, considering Ferrari’s strategic priorities and the automotive landscape. The performance measures that are used for variable components have been chosen to better support Ferrari’s strategy, long-term interests and sustainability. We establish target compensation levels using a market-based approach and we monitor compensation levels and trends in the market. In addition, we periodically benchmark our executive compensation program against other companies in similar industries with whom we are most likely to compete for the executive talent.
On the basis of the remuneration policy objectives, compensation of executive directors and SMT members consists, inter alia, of the following elements discussed below. Only the long-term incentives element of variable compensation was applicable to executive directors in 2019.
Fixed component
The primary objective of the base salary (the fixed part of the annual cash compensation) for executive directors and SMT members is to attract and retain highly qualified senior executives. Our policy is to periodically benchmark comparable salaries paid to executives with similar experience by comparable companies.
Variable components
Executive directors and SMT members are also eligible to receive variable compensation subject to the achievement of pre-established financial and other identified performance targets. The short and long-term components of executive directors’ and SMT members’ variable remuneration are linked to predetermined, assessable targets in order to create long-term value for the shareholders.
Short-term incentives
The primary objective of our performance-based short-term variable cash-based incentives is to incentivize the executive directors and SMT members to focus on the business priorities for the current or next year. The short-term incentive plan is designed to motivate its beneficiaries to achieve challenging targets, by recognizing individual contributions to the Group’s results on an annual basis. The Compensation Committee believes that it is appropriate to use a balance of corporate financial targets, strategic objectives and individual performance objectives.

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The methodology for Short Term Incentive Calculation is the following:
sticalculation.jpg
To determine the executive directors’ annual performance bonus, the non-executive directors, upon proposal of the Compensation Committee:
•
approve the executive directors’ targets and maximum allowable bonuses;

•
select the appropriate metrics and their weighting;

•
set the stretch objectives;

•
consider any unusual items in a performance year to determine the appropriate measurement of achievement; and

•
approve the final bonus determination.

In 2019, the Compensation Committee defined the Company Performance Factor including four metrics:

•
Net Revenues (20%)

•
Consolidated Adjusted EBIT (20%)

•
Consolidated EBITDA (20%)

•
Industrial Free Cash Flow (40%)
The Compensation Committee established challenging goals for each metric, each of which pays out independently. There is no minimum bonus payout. As a result, if none of the threshold objectives are satisfied, there is no bonus payment.
In addition, upon proposal of the Compensation Committee, the non-executive directors have authority to grant special bonuses for specific transactions that are deemed exceptional in terms of strategic importance and effect on Ferrari’s results. The form of any such bonus (cash, common shares of Ferrari or options to purchase common shares) is determined by the non-executive directors from time to time.
As described above, our executive directors (Executive Chairman and CEO) were not included in the Short-Term Incentive Plan in 2019, as the focus of their role is primarily on the long-term view.
Long-term incentives
We believe that the equity incentive plan discussed below increases the alignment between the Company’s performance and shareholder interests, by linking the compensation opportunity of the CEO, the Executive Chairman and SMT members of the Group to increasing shareholder value.

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Equity Incentive Plan 2019-2021

On February 26, 2019, the Board of Directors approved a new equity incentive plan covering a performance period from 2019 to 2021. The Equity Incentive Plan 2019-2021 is consistent with the Company’s business plan presented at the Capital Markets Day in September 2018. Under the Equity Incentive Plan 2019-2021, a combination of performance share units (“PSUs”) and retention restricted share units (“RSUs”), each representing the right to receive one Ferrari common share, have been awarded to the Executive Chairman and the CEO of the Company (as approved by Annual General Meeting on April 12, 2019), as well as to members of the SMT and other key employees of the Group.

The Equity Incentive Plan 2019-2021 has the features described below.

The PSU awards are based on the achievement of defined key performance indicators relating to: i) a relative total shareholder return (“TSR”) target (which is relative to the TSR of a peer group), ii) an EBITDA target, and iii) an innovation target. Each target is measured independently of the other targets and relates to separate portions of the aggregate awards. The RSU awards are service-based and will vest conditional on the Chairman’s and CEO’s continued employment with the Company at the time of vesting.

Type of Equity Long-Term Incentive Vehicle
Proportion of Equity Long-Term Grant
Vesting Cycle
Performance Metrics (Weighting)
Executive Chairman
Performance
Share Units
(PSUs)
67%
3-years cliff vesting
1) TSR (50%)
2) EBITDA (30%)
3) Innovation Performance Goal (20%)
Retention Restricted
Share Units
(RSUs)
33%
3-years cliff vesting
N/A
CEO
Performance
Share Units
(PSUs)
67%
3-years installment vesting:
- 12% after 1 year
- 12% after 2 years
- 76% after 3 years
1) TSR (50%)
2) EBITDA (30%)
3) Innovation Performance Goal (20%)
Retention Restricted
Share Units
(RSUs)
33%
3-years installment vesting:
- 33% after 1 year
- 33% after 2 years
- 34% after 3 years
N/A

The number of PSU awards earned is determined based on the level at which the three performance criteria described below are achieved. At the end of vesting period, the total number of PSUs earned is equal to the sum of:

•
the number of PSUs earned under the TSR payout factor, plus;

•
the number of PSUs earned under the EBITDA payout factor, plus;

•
the number of PSUs earned under the Innovation Performance Goal.


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Metrics
(weight)
Metrics
(type)
Benchmark
Rationale
Link between pay and performance
TSR (50%)
Financial criteria
New Peer Group *
(8 companies: Ferrari, Aston Martin, Burberry, Hermes, Kering, LVMH, Moncler, Richemont)
TSR is tracked for both Ferrari and the companies in the defined New Peer Group calculating starting and ending prices as an average of the 30 calendar days prior to grant and award date
relativetsra01.jpg
EBITDA (30%)
Financial criteria
5-year Business Plan
Earnings before interest, taxes, depreciation and amortization takes a company’s earnings, and subtracts its cost of debt, cost of goods sold and operating expenses and taxes, resulting in an indicator of Ferrari’s profitability
ebitda.jpg
Innovation Performance Factor (20%)
Non-financial criteria
Critical project milestones
The Innovation Performance Factor focuses on the new product launches in line with Ferrari’s plan and on technological innovation. It is measured in terms of product launches (milestones, volumes and contribution margin), for a weight of 70%, and key technological projects, for the remaining 30%, to be achieved during the performance period.
_____________________________
* Tiffany was removed from the New Peer Group as a consequence of its recently announced acquisition by LVMH in November 2019.
Our non-financial criterion, the Innovation Performance Factor. was added in the Equity Incentive Plan 2019-2021 in order to have a performance indicator directly linked to the long-term sustainability and technological innovation of our business.

The TSR peer group was updated during the course of 2019 in order to consider more strategically relevant comparable companies for Ferrari.

In relation to the vesting of the PSUs awarded to the CEO, for the interim performance periods ending on December 31, 2019 and December 31, 2020, a maximum of 100% of the units subject to the TSR and EBITDA payout factors may be earned and vest even in case of over-performance. Only at the end of the last interim performance period, ending on December 31, 2021, the plan recognizes a possible over-achievement through the recognition of a payout higher than the target award.

In relation to the vesting of the awards to the Chairman, the vesting of all units will occur after the end of the performance period (December 31, 2021), assuming the conditions for vesting are satisfied.

The performance period for the PSUs commenced on January 1, 2019. The fair value of the awards used for accounting purposes was measured at the grant date using a Monte Carlo Simulation model. The fair value of the PSUs that were granted to Mr. Elkann in 2019 is €111.64 per share and the fair value of the PSUs that were granted to Mr. Camilleri in 2019 is €111.25 per share.


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The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:
Key Assumptions
PSU Awards Granted to the Chairman and the CEO in 2019
Grant date share price
€122.90
Expected volatility
26.5%
Dividend yield
0.9%
Risk-free rate
0%

The expected volatility was based on the observed volatility of the Peer Group. The risk-free rate was based on the iBoxx sovereign Eurozone yield.

While the RSUs granted to Mr. Camilleri will vest in 2020, 2021 and 2022 subject to continued employment with the Company, the RSUs granted to Mr Elkann have a three-years cliff vesting period and will vest in 2022 subject to continued employment with the Company. The fair value of the RSUs that were granted to Mr. Elkann in 2019 is €119.54 and the fair value of the RSUs that were granted to Mr. Camilleri in 2019 is €120.56 .

Other benefits
Executive directors may also be entitled to customary fringe benefits such as personal use of aircraft, company cars and drivers, personal/home security, medical insurance, accident insurance, tax preparation and financial counseling. The Compensation Committee may grant other benefits to the executive directors in particular circumstances.

Severance

We offer customary perquisites to our CEO. If the Company terminates his services for reasons other than for cause (as defined) or if he terminates his services for good reason (as defined), the Company will pay the CEO an amount equal to his annual base salary, in the amount received for the last fiscal year prior to termination of his services (the “Severance”). If within twenty-four months following a change of control (as defined), the CEO’s services are terminated by the Company (other than for cause), or are terminated by the CEO for good reason, the CEO is entitled to receive the Severance and accelerated vesting of awards under his long-term incentive plan.

If within twenty-four months following a change of control (as defined), the Chairman’s services are terminated by the Company (other than for cause), or are terminated by the Chairman for good reason, the Chairman is entitled to receive the accelerated vesting of awards under his long-term incentive plan.

Internal pay ratios

In line with the Dutch Corporate Governance Code, the internal pay ratio is an important input for determining the Remuneration Policy for the Board of Directors. In the absence of prescribed methodologies within the Dutch Corporate Governance Code, for the financial year 2019 we chose to show two different internal pay ratios:

1.
Fixed Pay Ratio: considers the annual fixed salary of our executive directors versus the median employee’s base salary.

Using the CEO’s fixed remuneration of €700,000 in 2019, the resulting CEO pay ratio versus the median employee base salary was 22 (in 2018: 16). The change in the CEO pay ratio is primarily caused by the increase of the CEO’s fixed salary from €500,000 in 2018 to €700,000 in 2019. Similarly, the resulting Chairman pay ratio using the Chairman’s fixed remuneration versus the median employee base salary was 7.9 for 2019 (not applicable in 2018 as the Chairman did not hold an executive role).

2.
Total Pay Ratio: considers the annual target compensation of our executives directors versus the median employee’s compensation, consisting of actual fixed and variable compensation, excluding fringe benefits and social contributions.

Using the CEO’s target annual compensation of €5.2 million, the resulting CEO pay ratio versus the median employee was 138 (in 2018: 148). The change in the CEO pay ratio is primarily caused by the increase of the median employee’s compensation from €35,100 in 2018 to €37,694 in 2019, in line with our compensation strategy linked to the Group’s performance.

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Similarly, the resulting Chairman pay ratio using the Chairman’s targeted annual compensation of €1.0 million versus the median employee was 26.5 (not applicable in 2018 as the Chairman did not hold an executive role).

The methodology used to calculate the “Fixed Pay Ratio”, which takes only the fixed remuneration component and excludes the variable components of compensation, was originally chosen for the following two reasons. First, the overall compensation package (including fixed and variable components) depends on the results achieved by Group. Therefore, poor performance would imply low or null variable remuneration, thereby reducing the pay ratio, with less efficient performance resulting in a lower ratio, which may wrongly signal a virtuous development. Secondly, we exclude variable compensation to ensure comparability of the ratio over time, and to avoid the ratio being skewed in different periods by the vesting features of the plan. We added the “Total Pay Ratio” disclosure in 2019 in order to provide a more complete internal pay ratio disclosure and offer additional insight into the pay ratio when the target annual compensation of our executive directors is considered.
The development of these ratios and any prescribed methodologies within the Dutch Corporate Governance Code will be monitored and disclosed going forward.

Recoupment of incentive compensation (claw back policy)
The long-term incentive plans (the Equity Incentive Plan 2016-2020 and the Equity Incentive Plan 2019-2021) include a claw back clause, which allows the Company to claim the refund of part or all of the variable component of remuneration awarded or paid on the basis of information or data that subsequently prove manifestly incorrect, if the Board of Directors determines that circumstances that would have constituted “cause” (as defined) existed while the remuneration remained unvested or due to the beneficiaries’ fraud or negligence (each, a “Recovery Event”).

In particular, if a Recovery Event occurs within 2 years after the payment of cash or delivery of any shares in respect of the PSUs or RSUs, a participant will be required to repay the net amount received, as determined by the Board of Directors in its discretion.

Stock ownership
In 2019 the Board of Directors determined stock ownership guidelines applicable to Ferrari’s directors and certain employees, recognizing the critical role that stock ownership has in aligning the interests, in particular, of Ferrari’s Executive Chairman, CEO, SMT members and senior leaders and key employees with those of the shareholders. As of the end of the 2019 financial year, covered employees should own Ferrari common shares in the following minimum amounts (as multiple of net base salary):
Incumbent
Share Ownership Guideline
Executive Chairman and Chief Executive Officer
6 times net base salary
Other SMT members
3 times net base salary
Other senior leaders
1.5 times net base salary

Other key employees
1 times net base salary
The Chairman and the Chief Executive Officer are each required to retain one hundred percent (100%) of net, after-tax shares of common stock issued upon vesting and settlement of any equity awards granted to such individual until the fifth anniversary of the grant date of such award other than death, termination of service due to total disability, approved leave of absence or retirement.
The above listed covered employees are required to achieve the applicable ownership threshold within 5 years, through acquisitions of Ferrari common shares as a result of the vesting of PSUs or RSUs until the required ownership level has been met, excluding any shares sold to pay taxes in connection with the granting of those shares.
Scenario analysis
On an annual basis, the non-executive directors, upon proposal of the Compensation Committee, examine the relationship between the performance criteria chosen and the possible outcomes for the variable remuneration of Executive Chairman and our CEO (scenario analysis). To date, the non-executive directors believe the remuneration policy has proven effective in terms of establishing a correlation between Ferrari’s strategic goals and the chosen performance criteria, as the main

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key performance criteria of our Executive Chairman’s and our CEO’s long-term incentive plan (i.e. the TSR, EBITDA and Innovation Performance Factor), which represents a significant part of the Executive Chairman’s and the CEO’s compensation package, supports both Ferrari’s business strategy and value creation for our shareholders.

In the event that specific long-term threshold performance targets are not achieved, there will be no variable pay vesting or payout for executive directors for the relevant period.

The following table and chart describe compensation levels that current Executive Directors could receive under different scenarios in a calendar year, assuming a constant share price (i.e. no appreciation):
Element of remuneration
Details of assumption
Fixed remuneration
This comprises base salary with effect from January 1, 2020. The Executive Chairman salary will be €250,000 and the CEO salary will be €700,000
Short-term Incentive Plan
The Chairman and the CEO compensation packages do not include short-term incentives.
Long-term Incentive Plan
Executive Chairman:
–
in case of failure to achieve any of the performance criteria the scenario assumes no award of PSUs and solely the payment of RS Us;
–
in case of achievement of the targets for each of the performance criteria, the scenario assumes an award equal to target pay opportunity (300% of base salary);
–
in case of achievement of the maximum level of each performance criteria the scenario assumes the award equal to maximum pay opportunity (400% of base salary).

CEO:
–
in case of failure to achieve any of the performance criteria the scenario assumes no award of PSUs and solely the payment of RSUs;
–
in case of achievement of the targets for each of the performance criteria the scenario assumes the award equal to target pay opportunity (643% of base salary);
–
in case of achievement of the maximum for each of the performance criteria the scenario assumes the award equal to maximum pay opportunity (857% of base salary).

remunerationgraphs.jpg
N.B. Details about the actual CEO remuneration in the section 2. Implementation of Remuneration Policy in 2019


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Remuneration policy for Non-Executive Directors
Remuneration of non-executive directors is approved by the Company’s shareholders and periodically reviewed by the Compensation Committee.

Remuneration of non-executive directors is fixed and not dependent on the Company’s financial results. Non-executive directors are not eligible for variable compensation and do not participate in any incentive plans.

The current annual remuneration for the non-executive directors (which was approved at the Annual General Meeting of Shareholders’ of the Company, held on April 13, 2018) is:
•
$75,000 for each non-executive director.
•
An additional $10,000 for each member of the Audit Committee and $20,000 for the Audit Committee Chairman.
•
An additional $5,000 for each member of the Compensation Committee and the Governance and Sustainability Committee, and $15,000 for the Compensation Committee Chairman and the Governance and Sustainability Committee Chairman.
•
An additional $25,000 for the senior non-executive director.
All remuneration of the non-executive directors is paid in cash.



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2. Implementation of Remuneration Strategy in 2019
Introduction
This section sets out the implementation of Ferrari’s remuneration strategy for the year ended December 31, 2019. The remuneration granted in the year ended December 31, 2019 is in accordance with the substance and the procedures of the remuneration strategy (as set out above) and therefore we believe it allows us to seek to attract and retain the most highly qualified executive talent and motivate such executives to achieve business and financial goals that create long-term value for shareholders in a manner consistent with our core business and leadership values and taking into account the social context around the Company.
Directors’ compensation
The following table summarizes the remuneration received by the members of the Board of Directors for the year ended December 31, 2019 from Ferrari and its subsidiaries.
Name
Office held
Fixed remuneration
Variable remuneration (3) (€)
Extraordinary items
(€)
Pension expense
(€)
Total remuneration in 2019 (4)
(€)
Annual fee
(€)
Fringe benefits
(€)
John Elkann (1)
Chairman and Executive Director
211,666

11,920 (2)

—



—

223,586

Louis C. Camilleri
Chief Executive Officer and Executive Director
700,000

3,668 (2)

—

183,587 (5)

—

887,255

Total
Executive Directors
911,666

15,588

—

183,587

—

1,110,841

Piero Ferrari
Vice Chairman and Non-Executive Director
71,552

11,920 (2)

—

—

—

83,472

Sergio Duca
Senior Non-Executive Director
109,810

—

—

—

—

109,810

Delphine Arnault
Non-Executive Director
67,080

—

—

—

—

67,080

Giuseppina Capaldo
Non-Executive Director
86,465

—

—

—

—

86,465

Eddy Cue
Non-Executive Director
73,542

—

—

—

—

73,542

Lapo Elkann (6)
Non-Executive Director
18,627

—

—

—

—

18,627

Amedeo Felisa (6)
Non-Executive Director
18,627

—

—

—

—

18,627

Maria Patrizia Grieco
Non-Executive Director
76,024

—

—

—

—

76,024

Adam Keswick
Non-Executive Director
67,080

—

—

—

—

67,080

Elena Zambon
Non-Executive Director
74,535

—

—

—

—

74,535

Total
Non-Executive Directors
663,342

11,920

—

—

—

675,262

(1)
From 01/01/2019 to 04/12/2019: Chairman and Non-Executive Director. From 04/12/2019 to 12/31/2019: Chairman and Executive Director.
(2)
Relate to car benefits provided to Mr, Camilleri, Mr. Elkann and Mr. Ferrari in accordance with the remuneration policy.
(3)
For information regarding Equity Based Variable Compensation see Share-Based Compensation of Executive Directors below.
(4)
Certain amounts have been translated from U.S. Dollars to Euro.
(5)
The amount includes an extraordinary lump sum to compensate the Italian taxation impact on the CEO's relocation to Italy.
(6)
Mr. Lapo Elkann and Mr. Amedeo Felisa were Non-Executive Directors from 01/01/2019 to 04/12/2019.


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The following table summarizes the remuneration received by the members of the Board of Directors for the year ended December 31, 2018 from Ferrari and its subsidiaries.
Name
Office held
Fixed remuneration
Variable remuneration (€)
Extraordinary items
(€)
Pension expense
(€)
Total remuneration in 2018 (5)
(€)
Annual fee
(€)
Fringe benefits (2)
(€)
John Elkann (1)
Chairman and Executive Director
79,554

13,025

—

—

—

92,579

Louis C. Camilleri (3)
Chief Executive Officer and Executive Director
270,412

—

—

—

—

270,412

Total
Executive Directors
349,966

13,025

—

—

—

362,991

Piero Ferrari
Vice Chairman and Non-Executive Director
68,149

12,397

—

—

—

80,546

Sergio Duca (4)
Senior Non-Executive Director
94,890

—

—

—

—

94,890

Delphine Arnault
Non-Executive Director
63,889

—

—

—

—

63,889

Giuseppina Capaldo
Non-Executive Director
73,781

—

—

—

—

73,781

Eddy Cue
Non-Executive Director
68,149

—

—

—

—

68,149

Lapo Elkann (6)
Non-Executive Director
63,889

—

—

—

—

63,889

Amedeo Felisa (6)
Non-Executive Director
63,889

—

—

—

—

63,889

Maria Patrizia Grieco
Non-Executive Director
72,408

—

—

—

—

72,408

Adam Keswick
Non-Executive Director
63,889

—

—

—

—

63,889

Elena Zambon
Non-Executive Director
72,030

—

—

—

—

72,030

Total
Non-Executive Directors
704,963

12,397

—

—

—

717,360


(1)
From 01/01/2018 to 07/21/2018: Vice Chairman and Non-Executive Director. From 07/21/2018 to 12/31/2018: Chairman and Non-Executive Director.
(2)
Fringe benefits relate to car benefits provided to Mr. Elkann and Mr. Ferrari in accordance with the remuneration policy.
(3)
From 01/01/2018 to 07/21/2018: Senior Non-Executive Director. From 09/07/2018 to 12/31/2018: Chief Executive Officer and Executive Director.
(4)
From 07/21/2018 to 12/31/2018: Senior Non-Executive Director.
(5)
Certain amounts have been translated from U.S. Dollars to Euro.




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The following table shows a comparison of the total remuneration of directors over the last four years, based on Ferrari directors who served as directors in 2019. Compensation data for 2015 is not included as the Company was not a Dutch-listed company at December 31, 2015.
Directors’ Total Remuneration (€)


2019
2018
2017
2016
John Elkann
Chairman and Executive Director
223,586 (1)

92,579 (2)

115,317

142,864

Louis C. Camilleri
Chief Executive Officer and Executive Director
887,255

270,412 (3)

133,021

214,987

Piero Ferrari
Vice Chairman and Non-Executive Director
83,472

80,546

111,919

193,610

Sergio Duca
Senior Non-Executive Director
109,810

94,890 (4)

119,743

212,506

Delphine Arnault
Non-Executive Director
67,080

63,889

97,614

130,637

Giuseppina Capaldo
Non-Executive Director
86,465

73,781

106,465

195,162

Eddy Cue
Non-Executive Director
73,542

68,149

102,039

186,170

Lapo Elkann
Non-Executive Director
18,627 (7)

63,889

97,614

133,665

Amedeo Felisa
Non-Executive Director
18,627 (7)

63,889

87,655 (5)

6,750,315 (6)

Maria Patrizia Grieco
Non-Executive Director
76,024

72,408

106,465

136,750

Adam Keswick
Non-Executive Director
67,080

63,889

97,614

130,637

Elena Zambon
Non-Executive Director
74,535

72,030

102,039

189,138

Company Performance (€ million)
Adjusted EBITDA
1,269

1,114

1,036

880

Median of fixed remuneration on a full-time equivalent basis of employees (*) (€)
Median fixed remuneration of employees
31,782

30,600

30,385

29,938

(*) This information does not include the “Premio di Competitività”, which is on top of the fixed remuneration.

(1)
From 01/01/2019 to 04/12/2019: Chairman and Non-Executive Director. From 04/12/2019 to 12/31/2019: Chairman and Executive Director.
(2)
From 01/01/2018 to 07/21/2018: Vice Chairman and Non-Executive Director. From 07/21/2018 to 12/31/2018: Chairman and Non-Executive Director.
(3)
From 01/01/2018 to 07/21/2018: Senior Non-Executive Director. From 09/07/2018 to 12/31/2018: Chief Executive Officer and Executive Director.
(4)
From 07/21/2018 to 12/31/2018: Senior Non-Executive Director
(5)
Mr. Felisa served on the Board of Directors as Executive Director with a specific consultancy contract until the Annual General Meeting of Shareholders held on 04/14/2017, following which Mr. Felisa served as Non-Executive Director.
(6)
On May 2, 2016 Mr. Amedeo Felisa retired as Chief Executive Officer. His role was taken by Mr. Sergio Marchionne who assumed the Chief Executive Officer’s responsibilities while also retaining his role as Chairman of the Company. Mr. Felisa continued to serve on the Board of Directors of Ferrari as Executive Director with a specific consultancy contract until the Annual General Meeting of Shareholders held in April 2017 following which Mr. Felisa served as non-executive director. Base premium salary includes €814 thousand for his role as Chief Executive Officer from 01/01/2016 to 05/01 2016 and €167 thousand pursuant to the abovementioned consultancy contract from 05/02/2016 to 12/31/2016. Other includes €5,500 thousand for retirement package.
(7)
Mr. Lapo Elkan and Mr. Amedeo Felisa were Non-Executive Directors from 01/01/2019 to 04/12/2019



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Share-Based Compensation of Executive Directors

The following table gives an overview of the outstanding equity incentive plans provided to Ferrari Executive Directors in 2019:
Name, position
Main conditions of share award plans
Movements in share awards during 2019
Plan
Performance period
Grant date
Vesting date
Number of unvested shares at January 1, 2019
Shares awarded
Shares vested
Number of unvested shares at December 31, 2019
of which are subject to performance conditions
John Elkann, Executive Chairman
Equity Incentive Plan 2019-2021
2019 - 2021
April 2019
March 2022
—

20,703

—

20,703

13,802

Louis C. Camilleri, CEO
Equity Incentive Plan 2016-2020
2016 - 2020
September 2018
March 2019
17,108

—

17,108

—

11,405

Equity Incentive Plan 2019-2021
2019 - 2021
April 2019
March 2020
March 2021
March 2022
—

124,218

—

124,218

82,812


In 2017, the Board of Directors and the Shareholders approved an incentive plan covering the performance period from 2016-2020 (the “Equity Incentive Plan 2016-2020”). The Equity Incentive Plan 2016-2020 is comprised of a performance-based component represented by PSUs, equal to two thirds of the total share units granted, and a service-based component represented by RSUs covering the remaining one third of share units granted, each of which units represents the right to receive one common share of the Company. Under the terms of the Equity Incentive Plan 2016-2020, the PSUs vest subject to the achievement of a market performance condition related to the Company’s TSR compared to a peer group which was comprised of Ferrari and other seven companies (i.e., Brunello Cucinelli, Burberry, Ferragamo, Hermes, LVMH, Moncler and Richemont); the RSUs vest subject to the beneficiary’s continued employment with the Company.
The following table summarizes, from a pay-for-performance perspective, the performance of our CEO in 2019 with specific reference to Ferrari’s TSR performance against its industry-specific defined peer group, since it was the only performance indicator relating to PSU awards granted to our CEO in 2019. It should be noted that our CEO compensation package for 2019 did not include any short-term incentives:
Name
Position held
a) Description of the performance criteria
b) Applicable performance
Relative weighting of the performance criteria
Information on performance targets
a) Actual performance
b) Actual payout
a) Threshold performance
b) Corresponding award
a) Target performance
b) Corresponding award
a) Maximum performance
b) Corresponding award
Louis C. Camilleri
Chief Executive Officer
a) 3-year TSR (from January 4, 2016 to December 31, 2018)

b) Equity Incentive Plan 2016-2020
100.00%
a) 5 th out of 8 Companies

b) 50% of Target Award
a) 3rd out of 8 Companies

b) 100% of Target Award
a) 1st out of 8 Companies

b) 150% of Target Award
a) 3rd out of 8 Companies

b) 100% of Target Award
The former Chairman and Chief Executive Officer of the Company, Mr. Sergio Marchionne, was the beneficiary of PSU awards under the Equity Incentive Plan 2016-2020. Under the terms and conditions of the applicable award agreement, the PSUs awarded to Mr. Marchionne under the plan remain outstanding following Mr. Marchionne’s death in July 2018 for the benefit of his heirs, and are eligible to be earned based on the actual performance of the Company and in accordance with the other terms and conditions of the award agreement. For the first tranche of the PSU awards under the Equity Incentive Plan 2016-2020, which cover the performance period from 2016 to 2018, Ferrari ranked third in TSR within the defined industry-specific peer group applicable to the plan, corresponding to the vesting of 100 percent of the target PSUs awarded for the related period. As a result, in 2019 150,000 PSU awards previously granted to Mr. Marchionne under the Equity Incentive Plan 2016-2020 vested. A further 300,000 PSU awards previously awarded under the plan remain outstanding at December 31, 2019 and are subject to vesting based on the actual performance of the Company compared to the peer group over the related performance periods from 2016 to 2019 and 2016 to 2020.


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Compensation of the members of the SMT
The compensation paid to or accrued during the year ended December 31, 2019 by Ferrari and its subsidiaries to the members of the SMT (excluding the CEO) amounted to €19.9 million in aggregate, including €14.5 million for short-term incentives, €0.2 million for the Group’s contributions to pension funds and €5.2 million for share-based compensation in relation to PSUs and RSUs granted under the Group’s equity incentive plans. The PSU and RSU awards vest in three equal tranches in 2019, 2020 and 2021, subject to continued employment and, for the PSU awards, the achievement of a market performance condition related to TSR, as described above. Given Ferrari’s third place positioning in the TSR ranking against the Peer Group for the first tranche of the Equity Incentive Plan 2016-2020, which covers the performance period from 2016 to 2018, at December 31, 2019 29,444 PSUs and 14,722 RSUs had vested for SMT members (excluding the CEO).

Director and Officer Overlaps
There are overlaps among the directors and officers of FCA and our directors and officers. These individuals owe duties both to us and to the other companies that they serve as officers and/or directors. This may raise certain conflicts of interest as, for example, these individuals review opportunities that may be appropriate or suitable for both Ferrari and such other companies, or business transactions are pursued in which both Ferrari and such other companies have an interest, such as Ferrari’s arrangement to supply engines for Maserati cars. For example, Mr. John Elkann our Chairman, is also the Chairman of FCA and the Chairman and Chief Executive Officer of Exor. At February 7, 2020, Exor held approximately 24.0 percent of our outstanding common shares and approximately 35.8 percent of the voting power in the Company, while it holds approximately 29.0 percent of the outstanding common shares and 42.1 percent of the voting power in FCA, based on SEC filings. The percentages of ownership and voting power above are calculated based on the number of outstanding shares net of treasury shares. See “Item 3.D. —Risk Factors—Risks related to our Common Shares—We may have potential conflicts of interest with FCA and Exor and its related companies ”.

C. Board Practices

Please refer to “Item 6.A. Directors and Senior Management ” for additional information concerning the Company’s Directors required by this item and “Item 6.B Compensation ”.
Committees
The Board of Directors has established an Audit Committee effective as of January 3, 2016. Each member of the Audit Committee is an “independent” member of the Board of Directors under Rule 10A-3 under the Exchange Act and within the meaning of the Dutch corporate governance code (the “Code”).
The Compensation Committee and a Governance and Sustainability Committee were established by the Board of Directors effective as of January 3, 2016. The functions that these committees perform and their powers and responsibilities are determined by the Board of Directors from time to time in light of our size and structure and the provisions of the Code.
The Audit Committee consists of the following members:
Name
Position
Sergio Duca
Chairperson
Giuseppina Capaldo
Member
Maria Patrizia Grieco
Member
Pursuant to the charter of the Audit Committee, the function of the Audit Committee is to assist and advise the Board of Directors’, and act under authority delegated by the Board of Directors, with respect to, inter alia : (i) the integrity of Ferrari’s financial statements, including any published interim reports; (ii) Ferrari’s financing; (iii) the systems of internal controls that management and/or the Board of Directors have established; (iv) Ferrari’s compliance with legal and regulatory requirements; (v) Ferrari’s policies and procedures for addressing certain actual or perceived conflicts of interest; (vi) risk management guidelines and policies; (vii) the review and approval of related party transactions, and (viii) the implementation and effectiveness of the Company’s ethics and compliance program. The Audit Committee is comprised of at least three (3) non-executive directors elected by the Board of Directors. Each member of the Audit Committee shall:

112


•
neither have a material relationship with Ferrari, as determined by the Board of Directors nor be performing the functions of auditors or accountants for Ferrari;
•
be an “independent” member of the Board of Directors under the rules of the NYSE and Rule 10A-3 under the Exchange Act and within the meaning of the Code; and
•
be “financially literate” and have “accounting or selected financial management expertise” qualifications, as determined by the Board of Directors.
At least one member of the Audit Committee shall be a “financial expert” as defined in rules of the SEC and section 2(3) of the Dutch Decree on the Establishment of an audit committee.
The Governance and Sustainability Committee consists of the following members:
Name
Position
John Elkann
Chairperson
Giuseppina Capaldo
Member
Eddy Cue
Member
Pursuant to the charter of the Governance and Sustainability Committee, the function of the Governance and Sustainability Committee is to assist and advise the Board of Directors, and act under authority delegated by the Board of Directors, with respect to, inter alia : (i) drawing up the selection criteria and appointment procedures for members of the Board of Directors; (ii) periodic assessment of the size and composition of the Board of Directors; (iii) periodic assessment of the performance of individual directors and reporting this to the Board of Directors; (iv) proposals for appointment and reappointment of executive and non-executive directors. The Governance and Sustainability Committee is comprised of at least three (3) directors, at most one (1) of whom may be an executive director and at least half of whom must be independent within the meaning of the Code, elected by the Board of Directors.
The Compensation Committee consists of the following members:
Name
Position
Giuseppina Capaldo

Chairperson
Eddy Cue
Member
Piero Ferrari
Member
Pursuant to the charter of the Compensation Committee, the function of the Compensation Committee is to assist and advise the Board of Directors’, and act under authority delegated by the Board of Directors, with respect to: (i) executive compensation; (ii) remuneration policy to be pursued; (iii) compensation of non-executive directors; and (iv) remuneration reports. The Compensation Committee is comprised of at least three (3) non-executive directors, at most one (1) of whom will not be independent within the meaning of the Code, elected by the Board of Directors.

D. Employees
Human capital is a crucial factor in our success, building on our position as a global leader in the luxury performance car sector and creating long-term, sustainable value. To recognize excellence, encourage professional development and create equal opportunities, we adopt a number of initiatives, including our appraisal system to assess our middle-managers and white collar employees through performance management metrics; our talent management and succession planning; training and skill-building initiatives; employee satisfaction and engagement surveys, including our so-called “Pit Stop” and “Pole Position” programs; and flexible work arrangements, commuting programs and a dedicated welfare program, Formula Uomo, which includes, among other programs, Formula Benessere Program (offering medical assistance to employees and their families) and Formula Estate Junior (offering Summer Campus to the children of employees).

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At December 31, 2019 , we had a total of 4,285 employees, including 123 managers and senior managers. Of these, 4,043 were based at our Maranello facility, and 242 in offices around the world (including 22 managers and senior managers), mostly in North America and China.
At December 31,
2019
2018
2017
White-collar employees and middle-managers
1,983

1,691

1,531

Italy
1,772

1,517

1,358

Rest of the world
211

174

173

Workers
2,179

2,050

1,757

Italy
2,170

2,047

1,754

Rest of the world
9

3

3

Managers and senior managers
123

110

92

Total
4,285

3,851

3,380

Approximately 12 percent of the employees were trade union members in 2019. Our employees’ principal trade unions are Federazione Italiana Metalmeccanici (FIM-CISL), Federazione Italiana Sindacati Metalmeccanici e Industrie Collegate (FISMIC), Unione Italiana Lavoratori Metalmeccanici (UILM-UIL) and Federazione Impiegati Operai Metallurgici (FIOM-CGIL).
All of our employees are covered by collective bargaining agreements. Our managers are represented by the Italian trade union, Federmanager, and are subject to a collective bargaining agreement. Our other employees are covered by two agreements: the first one entered into by FCA, CNH Industrial N.V. and Ferrari with FIM-CISL, UILM-IUL, FISMIC and Unione Generale del Lavoro (UGL) signed on March 11, 2019 which will expire on December 31, 2022, and the second one named “Accordo Premio di Competitività Ferrari” signed on September 25, 2019 which will expire on December 31, 2023. This collective bargaining contract provides, among other things, for the payment of bonuses linked to performance up to a maximum of approximately €13,000 gross per year and payable in four installments: three advances and a final balance.
In addition to the collective agreements, we have individually negotiated agreements with several of our managers and other key employees providing for long-term incentives, exclusivity and non-compete provisions.

E. Share Ownership
The number of shares directly and indirectly owned by members of the Board of Directors on February 7, 2020 is set forth in the table below.
Name
Common Shares
% of Common Shares Outstanding
Special Voting Shares
% of Special Voting Shares Outstanding
Piero Ferrari
18,894,295

10.2
%
18,892,160

29.8
%
John Elkann
15,375

(*)


—

—

Louis C. Camilleri
22,748

(*)

—

—

Delphine Arnault
2,803

(*)

—

—

Eddy Cue
2,692

(*)

—

—

Adam Keswick
2,643

(*)

—

—

Elena Zambon
1,808

(*)

—

—


(*) Common shares held represent less than 1 percent of our common shares outstanding as of February 7, 2020.

No members of the SMT beneficially own 1 percent or more of the Company’s common shares.


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Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
Exor is the largest shareholder of Ferrari through its approximately 24.0 percent shareholding interest in our outstanding common shares (as of February 7, 2020). See “Item 4.A. History and Development of the Company .” As a result of the loyalty voting mechanism, Exor’s voting power is approximately 35.8 percent (as of February 7, 2020). In addition, as of February 7, 2020, Mr. Piero Ferrari holds approximately 10.2 percent of our outstanding common shares and, as a result of the loyalty voting mechanism, his voting power is approximately 15.2 percent. The percentages of ownership and voting power above are calculated based on the number of outstanding shares net of treasury shares.
Exor and Mr. Piero Ferrari informed us that they have entered into a shareholder agreement, summarized below under “ —Shareholders’ Agreement ”.
Exor resulted from a cross-border merger of its predecessor entity, Exor S.p.A. with and into Exor N.V. As a result of that merger, which was completed on December 11, 2016, all activities of Exor S.p.A. are continued by Exor under universal succession, including with respect to the holding of our shares. Exor is controlled by Giovanni Agnelli B.V. (“G.A.”), which holds 52.99 percent of its share capital, based on regulatory filings with the Netherlands Authority for the Financial Markets ( stichting Autoriteit Financiële Markten, the “AFM”). G.A. is a Dutch private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) with interests represented by shares, founded by Giovanni Agnelli and currently held by members of the Agnelli and Nasi families, descendants of Giovanni Agnelli, founder of Fiat. Its present principal business activity is to purchase, administer and dispose of equity interests in public and private entities and, in particular, to ensure the cohesion and continuity of the administration of its controlling equity interests. The managing directors of G.A., as of February 7, 2020, were John Elkann, Jeroen Preller, Florence Hinnen, Tiberto Brandolini d’Adda, Alessandro Nasi, Andrea Agnelli, Luca Ferrero de’ Gubernatis Ventimiglia and Eduardo Teodorani-Fabbri.
Based on the information in Ferrari’s shareholder register, regulatory filings with the AFM and the SEC and other sources available to us, the following shareholders owned, directly or indirectly, in excess of three percent of the common shares holding voting rights of Ferrari, as of February 7, 2020:

Shareholder
Number of common shares
Percentage owned (1)
Exor N.V. (2)
44,435,280

24.0
%
Piero Ferrari (2)
18,894,295

10.2
%
BlackRock, Inc. (3)
11,229,807

6.1
%
T. Rowe Price Associates, Inc. (4)
8,648,944

4.7
%
Other public shareholders
101,877,301

55.0
%
(1)
The percentages of share capital set out in this table are calculated as the ratio of (i) the aggregate number of outstanding common shares beneficially owned by the shareholder to (ii) the total number of outstanding common shares (net of treasury shares) of Ferrari. These percentages may slightly differ from the percentages of share capital included in the public register held by the AFM of all notifications made pursuant to the disclosure obligations under chapter 5.3 of the Dutch Act on financial supervision (Wet op het financieel toezicht; the “AFS”), inter alia, because any shares held in treasury by Ferrari are included in the relevant denominators for purposes of the AFS disclosure obligations.
(2)
Each of Exor and Piero Ferrari participate in the loyalty voting program of Ferrari. As of February 7, 2020 Exor owned 44,435,280 special voting shares, including 6,854,893 special voting shares issued to Exor in April 2019 under the terms of the loyalty voting program, and Mr. Ferrari owned 18,892,160 special voting shares. Therefore, as discussed above in this section, their voting power in Ferrari is higher than the percentage of common shares beneficially held as presented in this table.
(3)
Based on filings with the SEC (Amendment No. 1 to Schedule 13G filed by BlackRock, Inc. on February 5, 2020, File No. 005-89223), BlackRock, Inc. is a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) and, out of the common shares beneficially owned as set forth in the table, it has sole voting power over 10,276,324 common shares.
(4)
Based on filings with the SEC (Amendment No. 1 to Schedule 13G filed on February 14, 2018, File No. 005-89223), T. Rowe Price Associates, Inc. is an investment adviser registered under Section 203 of the U.S. Investment Advisers Act of 1940 and, out of the common shares beneficially owned as set forth in the table, it has sole voting power over 3,143,852 common shares.
Based on the information in Ferrari’s shareholder register and other sources available to us, as of February 7, 2020, approximately 58.2 million Ferrari common shares, or 31.4 percent of the outstanding Ferrari common shares, were held in the United States. As of the same date, approximately 1,850 record holders had registered addresses in the United States.


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Shareholders’ Agreement
On December 23, 2015, Exor and Piero Ferrari entered into a Shareholders’ Agreement, which became effective at the completion of the Separation on January 3, 2016 (the “Shareholders’ Agreement”) and prior to the admission to listing and trading of the common shares of Ferrari on the MTA. Ferrari is not a party to the Shareholders’ Agreement and does not have any rights or obligations thereunder. Below is a summary of the principal provisions of the Shareholders’ Agreement based on regulatory filings made by Exor and Piero Ferrari.
Consultation
For the purposes of forming and exercising, to the extent possible, a common view on the items on the agenda of any General Meeting of shareholders of Ferrari, Exor and Piero Ferrari will consult with each other prior to each General Meeting. For the purposes of this consultation right and duties, representatives of each of Exor and Piero Ferrari shall meet in order to discuss in good faith whether they have or can find a common view as to the matters on the agenda of the immediately following General Meeting. This consultation right does not include an obligation to vote in any certain way nor does it constitute a veto right in favor of Piero Ferrari.
Pre-emption right in favor of Exor and right of first offer of Piero Ferrari
In the event that Piero Ferrari intends to transfer (in whole or in part) his Ferrari common shares or receives a third party offer for the acquisition of all or part of his Ferrari common shares, Exor will have the right to purchase all (but not less than all) of the common shares Piero Ferrari intends to transfer on the terms of the original proposed transfer by Piero Ferrari or, in case the original proposed transfer was for no consideration, at market prices determined pursuant to the Shareholders’ Agreement.
In the event Exor intends to transfer (in whole or in part) its common shares to a third party, either solicited or unsolicited, Piero Ferrari will have the right to make a binding, unconditional and irrevocable all cash offer for the purchase of such common shares.
The foregoing will not apply in the case of transfers of Ferrari common shares: (i) by any party to the Shareholders’ Agreement, to a party that qualifies as a “Loyalty Transferee” (as defined in the Ferrari Articles of Association) of such party, (ii) by Exor, to any affiliate of G.A., to a successor in business of G.A. and to any affiliate of a successor in business of G.A., and (iii) by any party to the Shareholders’ Agreement that is an individual, to an entity wholly owned and controlled by that same party. In addition, the provisions regarding the pre-emption right in favor of Exor and right of first offer of Piero Ferrari shall not apply in relation to, and Piero Ferrari shall be free and allowed to carry out, market sales to third parties of his Ferrari common shares which in the aggregate do not exceed, during the whole period of validity of the Shareholders’Agreement, 0.5 percent of the number of common shares owned by Piero Ferrari upon completion of the Separation.
Term
The Shareholders’ Agreement entered into force upon completion of the Separation on January 3, 2016 and shall remain in force until the fifth anniversary of the effective date of the Separation, provided that if neither of the parties to the Shareholders’ Agreement terminates the Shareholders’ Agreement within six months before the end of the initial term, then the Shareholders’ Agreement shall be renewed automatically for another five year term.
The Shareholders’ Agreement shall terminate and cease to have any effect as a result of the transfer of all the common shares owned by either Exor or Piero Ferrari to a third party.
Governing law and jurisdiction
The Shareholders’ Agreement is governed by and must be interpreted according to the laws of the Netherlands. Any disputes arising out of or in connection with the Shareholders’ Agreement are subject to the exclusive jurisdiction of the competent court in Amsterdam, the Netherlands, without prejudice to the right of appeal and appeal to the Supreme Court.

B. Related Party Transactions
Parties related to us are all entities and individuals capable of exercising control, joint control or significant influence over us and our subsidiaries, companies belonging to the FCA Group and other companies controlled by Exor (including CNH Industrial N.V. and its subsidiaries), and our unconsolidated subsidiaries, associates and joint ventures. In addition, members of our Board of Directors and executives with strategic responsibilities and their families are also considered related parties.

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We carry out transactions with related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. Transactions carried out by us with these related parties are primarily of a commercial nature and, in particular, these transactions relate to:
Transactions with FCA Group companies
•
the sale of engines and car bodies to Maserati S.p.A. (“Maserati”) which is controlled by the FCA Group;
•
the purchase of engine components for the use in the production of Maserati engines from FCA US LLC, which is controlled by FCA Group;
•
a technical cooperation, starting from November 2019, between the Group and FCA Group with the aim to enhance the quality and competitiveness of their respective products, while reducing costs and investments;
•
the purchase of automotive lighting and automotive components from Magneti Marelli S.p.A., Automotive Lighting Italia S.p.A., Sistemi Sospensioni S.p.A. and Magneti Marelli Powertrain Slovakia s.r.o. (which form part of “Magneti Marelli”), which were controlled by the FCA Group until May 2, 2019 when FCA completed the sale of Magneti Marelli. Following the sale, Magneti Marelli (which subsequently operates under the name “Marelli”) is no longer a related party;
•
transactions with FCA Group companies, mainly relating to the services provided by FCA Group companies, including human resources, payroll, tax, customs and procurement of insurance coverage and sponsorship revenues.
Transactions with Exor Group companies (excluding FCA Group companies)
•
the Group incurs rental costs from Iveco Group companies related to the rental of trucks used by the Formula 1 racing team;
•
the Group earns sponsorship revenue from Iveco S.p.A.
Transactions with other related parties
•
the purchase of components for Formula 1 racing cars from COXA S.p.A., controlled by Piero Ferrari;
•
consultancy services provided by HPE S.r.l., controlled by Piero Ferrari;
•
sponsorship agreement relating to Formula 1 activities with Ferretti S.p.A.;
•
sale of cars to certain members of the Board of Directors of Ferrari N.V. and Exor.
In accordance with IAS 24, transactions with related parties also include compensation to Directors and managers with strategic responsibilities. Please see Note 28 “ Related Party Transactions ” to the Consolidated Financial Statements for further details on our related party transactions.

C. Interests of Experts and Counsel

Not applicable .

Item 8. Financial Information
A. Consolidated Statements and Other Financial Information

Consolidated Financial Statements

Refer to “Item 18. Financial Statements ” for our Consolidated Financial Statements and report of our independent registered public accounting firm included elsewhere in this document.

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Export Sales

Refer to “Item 4.B . Business Overview ” for a discussion of our sales and distribution channels.
Legal Proceedings
Legal proceedings, claims and governmental investigations are pending against us on a wide range of topics, including car safety; emissions and fuel economy, early warning reporting; dealer, supplier and other contractual relationships; intellectual property rights and product warranty matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seat belts, brakes, transmissions, engines and fuel systems) in various car models or allege general design defects relating to car handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases could include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require us to pay substantial damages, or undertake service actions, recall campaigns or other costly actions. For information regarding provisions made for legal proceedings, refer to Note 23 “ Provisions ” of our Consolidated Financial Statements included elsewhere in this document.


Dividend Policy
Subject to the approval by the Shareholders at the 2020 Annual General Meeting, the Company intends to make a dividend distribution to the holders of common shares of Euro 1.13 per common share, corresponding to a total dividend distribution to shareholders of approximately Euro 210 million.

We intend to return capital to holders of common shares over time through a sustainable dividend policy designed to provide adequate returns to shareholders, while supporting growth and protecting our creditworthiness in order to facilitate access to external funding. We intend to pay 30 percent of our annual net profit by way of dividend in the coming years; however, the actual level of dividends will be subject to our earnings, cash balances, commitments, strategic plans and other factors that our Board of Directors may deem relevant at the time of the dividend, including adjustments for income or costs that are significant in nature but expected to occur infrequently. For additional information on distribution of profits, refer to “Item 10B. Memorandum and Articles of Association ”. Our dividend policy is subject to change in the future based on changes in statutory requirements, market trends, strategic developments, capital requirements and a number of other factors.

All issued and outstanding common shares will rank equally and will be eligible for any profit or other payment that may be declared on the common shares. Pursuant to our Articles of Association, holders of special voting shares are entitled to a minimum dividend, which is allocated to the special dividend reserve. A distribution from the special dividend reserve or the (partial) release of the special dividend reserve will require a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares. Ferrari does not intend to propose any distribution from the special dividend reserve.

For additional information on distribution of profits, refer to “Item 10.B. Memorandum and Articles of Association .”
In addition, we are carrying out a share repurchase program. For additional information please refer to “Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers ”.

B. Significant Changes

Except otherwise disclosed within this Annual Report on Form 20-F, no significant change has occurred since the date of the Consolidated Financial Statements.


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Item 9. The Offer and Listing
A. Offer and Listing Details
In the United States, our common shares are listed and traded on the NYSE (trading symbol “RACE”). Our common shares are also listed and traded on the MTA (trading symbol “RACE”).

B. Plan of Distribution
Not applicable.
C. Markets

See “ —Offer and Listing Details ” above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
A copy of the articles of association of our predecessor company has been filed as Exhibit 3.1 to Ferrari N.V. Registration Statement on Form F-1 filed on July 23, 2015.

Our articles of association are identical in all material aspect to those of our predecessor company.

The Ferrari Shares, Articles Of Association And Terms And Conditions Of The Special Voting Shares

Ferrari was incorporated as a public limited liability company ( naamloze vennootschap ) under the laws of the Netherlands on September 4, 2015 under the name FE New N.V., in contemplation of the Merger, and was renamed Ferrari N.V. effective as of January 3, 2016, upon effectiveness of the Merger. Its official seat ( statutaire zetel ) is in Amsterdam, the Netherlands, and its corporate address and principal place of business is located at Via Abetone Inferiore n. 4, I-41053 Maranello (MO), Italy. Ferrari is registered with the Trade Register of the Chamber of Commerce under number 64060977. Its telephone number is +39-0536-949111. The Company’s object, set forth in Article 3.1 of the Articles of Association, is to carry on, either directly or through wholly or partially-owned companies and entities, activities relating in whole or in any part to passenger and commercial vehicles, transport, mechanical engineering, energy, engines, capital machinery and equipment and related goods and propulsion, as well as any other manufacturing, commercial, financial or service activity.
Since incorporation Ferrari has had, and it intends to continue to have, its place of effective management in Italy. It will therefore be a tax resident of Italy under both Italian tax law and Article 4 of the Convention between the Kingdom of the Netherlands and the Republic of Italy for the avoidance of a double taxation with respect to taxes on income and on capital of 1980.

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Following is a summary of material information relating to the Ferrari common shares, including summaries of certain provisions of the Ferrari’s articles of association (the “Ferrari Articles of Association”), the terms and conditions in respect of the Ferrari special voting shares (the “Terms and Conditions”) and the applicable Dutch law provisions in effect at the date of this annual report. The summaries of the Ferrari Articles of Association and the Terms and Conditions as set forth in this annual report are qualified in their entirety by reference to the full text of the Ferrari Articles of Association, and Terms and Conditions.
Share Capital
The authorized share capital of Ferrari is seven million five hundred thousand Euro (€7,500,000), divided into three hundred seventy five million (375,000,000) Ferrari common shares, nominal value of one Euro cent (€0.01) per share and an equal number of special voting shares, nominal value of one Euro cent (€0.01) per share.
Upon incorporation on September 4, 2015, Ferrari’s issued share capital was €50,000, fully paid and divided into 5,000,000 common shares having a nominal value of €0.01 each.  In connection with the Merger, Ferrari issued 188,923,499 common shares and 56,497,618 special voting shares, and the 5,000,000 common shares previously outstanding were retired and held in treasury. In 2017, 30,375 shares of such treasury shares have been transferred to non-executive directors who elected to receive part of their compensation in the form of common shares in accordance with our former remuneration policy.
On February 9, 2018, Ferrari launched a share repurchase program for the repurchase of up to Euro 100 million in common shares, which was completed on November 27, 2018. On December 28, 2018, Ferrari launched the first tranche of a multi-year Euro 1.5 billion total share repurchase program expected to be executed by 2022 for the repurchase of up to Euro 150 million in common shares, which was completed on June 26, 2019. On July 1, 2019, Ferrari announced the launch of a second tranche of the above mentioned share repurchase program, for the repurchase of up to Euro 200 million common shares. Such second tranche started on July 2, 2019 and was completed on November 12, 2019. On November 14, 2019, Ferrari announced the launch of a third tranche of the above mentioned share repurchase program, for the repurchase of up to Euro 200 million common shares. Purchases under such third tranche commenced on November 15, 2019 and will end no later than June 24, 2020.
As of December 31, 2019, Ferrari’s common shares held in treasury amounted to 8,640,176. As of the same date, the Company held in treasury 3.36 percent of its total issued share capital including the common shares and the special voting shares. For additional information on the above-mentioned share repurchase program, refer to “Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers ”.

On February 26, 2019 the Board of Directors approved the issuance of 6,855,396 special voting shares with a nominal value of one Euro cent (€0.01) per share to be assigned to existing shareholders entitled to receive such special voting shares under the terms of the loyalty voting program.
A delegation of authority to the Board of Directors to authorize the issuance of common shares without pre-emptive rights enables Ferrari to offer and sell newly issued common shares to investors free of pre-emptive rights for a period of five years from January 2, 2016. Under Dutch law, such authorization may not exceed a period of five years, but may be renewed by a resolution of the general meeting of shareholders for subsequent five-year periods at any time.
Ferrari common shares are registered shares represented by an entry in the share register of Ferrari. The Board of Directors may determine that, for the purpose of trading and transfer of shares on a foreign stock exchange, such share certificates shall be issued in such form as shall comply with the requirements of such foreign stock exchange. A register of shareholders is maintained by Ferrari in the Netherlands and a branch register is maintained in the United States on Ferrari’s behalf by the Transfer Agent, which serves as branch registrar and transfer agent.
Beneficial interests in Ferrari common shares that are traded on the NYSE are held through the book-entry system provided by The Depository Trust Company (“DTC”) and are registered in Ferrari’s register of shareholders in the name of Cede & Co., as DTC’s nominee. Beneficial interests in the Ferrari common shares traded on the MTA are held through Monte Titoli S.p.A., the Italian central clearing and settlement system, as a participant in DTC.
As per the resolution of the Annual General Meeting of Shareholders on April 12, 2019 which approved to cancel all special voting shares in the share capital of the Company held in treasury as of that date, on August 29, 2019 the Company completed the cancellation process of 3,902 special voting shares.

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Directors

Set forth below is a summary description of the material provisions of the Ferrari Articles of Association, relating to our directors. The summary does not restate the Ferrari Articles of Association in their entirety.
Ferrari’s directors serve on the Board of Directors for a term of approximately one year, such term ending on the day that the first annual general meeting of the shareholders is held in the following calendar year. Ferrari’s shareholders appoint the directors of the Board of Directors at a general meeting. Each director may be reappointed at any subsequent general meeting of shareholders. The general meeting of shareholders determines whether a director is an executive director or a non-executive director.
The Board of Directors is a one tier board and consists of three or more members, comprising both members having responsibility for the day-to-day management of Ferrari (executive directors) and members not having such day-to-day responsibility (non-executive directors). The tasks of the executive and non-executive directors in a one-tier board such as Ferrari’s Board of Directors may be allocated under or pursuant to the Ferrari Articles of Association, provided that the general meeting has stipulated whether each such director is appointed as executive or as non-executive director and furthermore provided that the task to supervise the performance by the directors of their duties can only be performed by the non-executive directors. In addition, an executive director may not be appointed chairman of the board or delegated the task of establishing the remuneration of executive directors or nominating directors for appointment. Tasks that are not allocated fall within the power of the Board of Directors as a whole. Regardless of an allocation of tasks, all directors remain collectively responsible for the proper management and strategy of Ferrari (including supervision thereof in case of non-executive directors). The Board of Directors may determine that one or more directors can lawfully adopt board resolutions concerning matters belonging to his or their duties.
Ferrari has a policy in respect of the remuneration of the members of the Board of Directors. With due observation of the remuneration policy, the Board of Directors may determine the remuneration for the directors in respect of the performance of their duties. The Board of Directors must submit to the Annual General Meeting of Shareholders for its approval plans to award shares or the right to subscribe for shares. The policy was partially amended as approved by the Annual General Meeting of shareholders held on April 14, 2017 by introducing the principle that non-executive directors are paid in cash only and by introducing certain facilitations for the directors in the purchase or use of Company products. In addition the amended policy will provide for the Board of Directors to issue stock ownership guidelines applicable to directors and employees.
Ferrari shall not grant the directors any personal loans or guarantees.
Loyalty Voting Program
In connection with the Separation, Ferrari issued special voting shares with a nominal value of one Euro cent (€0.01) per share, to FCA, Piero Ferrari and FCA shareholders holding FCA special voting shares prior to the Separation including Exor, in addition to Ferrari common shares.
As of February 7, 2020, Exor held approximately 35.8 percent of the voting power in the Company, Piero Ferrari held approximately 15.2 percent of the voting power in Ferrari and public shareholders held approximately 49.0 percent of the voting power in the Company. The percentages of voting power above are calculated based on the number of outstanding shares net of treasury shares. For more information on the Separation, see “Item 4.A. History and Development of the Company ”.

Subject to meeting certain conditions, our common shares can be registered in our loyalty register (the “Loyalty Register”) and all such common shares may qualify as qualifying common shares (“Qualifying Common Shares”). The holder of Qualifying Common Shares is entitled to receive without consideration one special voting share in respect of each such Qualifying Common Share. Pursuant to the Terms and Conditions, and for so long as the Ferrari common shares remain in the Loyalty Register, such Ferrari common shares shall not be sold, disposed of, transferred, except in very limited circumstances ( i.e., transfers to affiliates or to relatives through succession, donation or other transfers (defined in the Terms and Conditions as “Loyalty Transferee”), but a shareholder may create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over such Ferrari common shares, provided that the voting rights in respect of such Ferrari common shares and any corresponding special voting shares remain with such shareholder at all times. Ferrari’s shareholders who want to directly or indirectly sell, dispose of, trade or transfer such Ferrari common shares or otherwise grant any right or interest therein, or create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over such Ferrari common shares with

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a potential transfer of voting rights relating to such encumbrances will need to submit a de-registration request as referred to in the Terms and Conditions, in order to transfer the relevant Ferrari common shares to the regular trading system (the “Regular Trading System”) except that a Ferrari shareholder may transfer Ferrari common shares included in the Loyalty Register to a Loyalty Transferee (as defined in the Terms and Conditions) of such Ferrari shareholder without transferring such shares from the Loyalty Register to the Regular Trading System.
Ferrari’s shareholders who seek to qualify to receive special voting shares can also request to have their Ferrari common shares registered in the Loyalty Register. Upon registration in the Loyalty Register such shares will be eligible to be treated as Qualifying Common Shares, provided they meet the conditions more fully described under “ —Terms and Conditions of the Special Voting Shares ” below.
Notwithstanding the fact that Article 13 of the Ferrari Articles of Association permits the Board of Directors of Ferrari to approve transfers of special voting shares, the special voting shares cannot be traded and are transferable only in very limited circumstances ( i.e., to a Loyalty Transferee described above, or to Ferrari for no consideration ( om niet )).
Pursuant to Article 23 of the Ferrari Articles of Association, Ferrari shall maintain a special capital reserve to be credited against the share premium exclusively for the purpose of facilitating any issuance or cancellation of special voting shares. The special voting shares shall be issued and paid up against this special capital reserve.
The special voting shares have immaterial economic entitlements. Such economic entitlements are designed to comply with Dutch law but are immaterial for investors. The special voting shares carry the same voting rights as Ferrari common shares.
Section 10 of the Terms and Conditions include liquidated damages provisions intended to deter any attempt by holders to circumvent the terms of the special voting shares. Such liquidated damages provisions may be enforced by Ferrari by means of a legal action brought by Ferrari before competent courts of Amsterdam, the Netherlands. In particular, a violation of the provisions of the Terms and Conditions concerning the transfer of special voting shares, Electing Common Shares (common shares registered in the Loyalty Register for the purpose of becoming Qualifying Common Shares in accordance with the Ferrari Articles of Association) and Qualifying Common Shares may lead to the imposition of liquidated damages. Because we expect the restrictions on transfers of the special voting shares to be effective in practice we do not expect the liquidated damages provisions to be used.
Pursuant to Section 12 of the Terms and Conditions, any amendment to the Terms and Conditions (other than merely technical, non-material amendments and unless such amendment is required to ensure compliance with applicable law or regulations or the listing rules of any securities exchange on which the Ferrari common shares are listed) may only be made with the approval of the general meeting of shareholders of Ferrari.

At any time, a holder of Qualifying Common Shares or Electing Common Shares may request the de-registration of such shares from the Loyalty Register to enable free trading thereof in the Regular Trading System. Upon the de-registration from the Loyalty Register, such shares will cease to be Electing Common Shares or Qualifying Common Shares as the case may be and will be freely tradable and voting rights attached to the corresponding special voting shares will be suspended with immediate effect and such special voting shares shall be transferred to Ferrari for no consideration ( om niet ).
Terms and Conditions of the Special Voting Shares

The Terms and Conditions apply to the issuance, allocation, acquisition, holding, repurchase and transfer of special voting shares in our share capital and to certain aspects of Electing Common Shares, Qualifying Common Shares and Ferrari common shares, which are or will be registered in the Loyalty Register.
Application for Special Voting Shares
A Ferrari shareholder may at any time elect to participate in the loyalty voting program by requesting that Ferrari register all or some of the number of Ferrari common shares held by such Ferrari shareholder in the Loyalty Register. Such election shall be effective and registration in the Loyalty Register shall occur as of the end of the calendar month during which the election is made. If such Ferrari common shares (i.e. Electing Common Shares) have been registered in the Loyalty Register (and are thus blocked from trading in the Regular Trading System) for an uninterrupted period of three years in the name of the same shareholder, the holder of such Ferrari common shares will be entitled to receive one Ferrari special voting share for each such Ferrari common share that has been registered. If at any moment in time such Ferrari common shares are de-registered from the

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Loyalty Register for whatever reason, the relevant shareholder loses its entitlement to hold a corresponding number of Ferrari special voting shares.
Withdrawal of Special Voting Shares
As described above, a holder of Qualifying Common Shares or Electing Common Shares may request that some or all of its Qualifying Common Shares or Electing Common Shares be de-registered from the Loyalty Register and if held outside the Regular Trading System, transfer such shares back to the Regular Trading System, which will allow such shareholder to freely trade its Ferrari common shares, as described below. From the moment of such request, the holder of Qualifying Common Shares shall be considered to have waived his rights to cast any votes associated with the Ferrari special voting shares which were issued and allocated in respect of such Qualifying Common Shares. Any such request would automatically trigger a mandatory transfer requirement pursuant to which the Ferrari special voting shares will be offered and transferred to Ferrari for no consideration in accordance with the Ferrari Articles of Association and the Terms and Conditions. Ferrari may continue to hold the special voting shares as treasury stock, but will not be entitled to vote any such treasury stock. Alternatively, Ferrari may withdraw and cancel the special voting shares, as a result of which the nominal value of such shares will be allocated to the special capital reserves of Ferrari. Consequently, the loyalty voting feature will terminate as to the relevant Qualifying Common Shares being deregistered from the Loyalty Register. No shareholder required to transfer special voting shares pursuant to the Terms and Conditions shall be entitled to any consideration for such special voting shares and each shareholder expressly waives any rights in that respect as a condition to participation in the loyalty voting program.
Change of Control
A shareholder who is a holder of Qualifying Common Shares or Electing Common Shares must promptly notify the Agent and Ferrari upon the occurrence of a “change of control” as defined in the Ferrari Articles of Association, as described below. The change of control will trigger the de-registration of the relevant Electing Common Shares or Qualifying Common Shares or the relevant Ferrari common shares in the Loyalty Register. The voting rights attached to the special voting shares issued and allocated in respect of the relevant Qualified Common Shares will be suspended upon a direct or indirect change of control in respect of the relevant holder of such Qualifying Common Shares that are registered in the Loyalty Register.

For the purposes of this section a “change of control” shall mean, in respect of any Ferrari shareholder that is not an individual ( natuurlijk persoon ), any direct or indirect transfer in one or a series of related transactions as a result of which (i) a majority of the voting rights of such shareholder, (ii) the de facto ability to direct the casting of a majority of the votes exercisable at general meetings of shareholders of such shareholder and/or (iii) the ability to appoint or remove a majority of the directors, executive directors or board members or executive officers of such shareholder or to direct the casting of a majority or more of the voting rights at meetings of the board of directors, governing body or executive committee of such shareholder has been transferred to a new owner, provided that no change of control shall be deemed to have occurred if (a) the transfer of ownership and/or control is an intra-group transfer under the same parent company, (b) the transfer of ownership and /or control is the result of the succession or the liquidation of assets between spouses or the inheritance, inter vivos donation or other transfer to a spouse or a relative up to and including the fourth degree or (c) the fair market value of the Qualifying Common Shares held by such shareholder represents less than twenty percent (20 percent) of the total assets of the Transferred Group at the time of the transfer and the Qualifying Common Shares held by such shareholder, in the sole judgment of the company, are not otherwise material to the Transferred Group or the change of control transaction. “Transferred Group” shall mean the relevant shareholder together with its affiliates, if any, over which control was transferred as part of the same change of control transaction within the meaning of the definition of change of control.
Liability to Further Capital Calls
All of the outstanding Ferrari common shares and special voting shares are fully paid and non-assessable.
Additional Issuances and Rights of Preference
Issuance of Shares
The general meeting of shareholders of Ferrari (the “General Meeting”) has the authority to resolve on any issuance of shares, unless such authority has been delegated to the Board of Directors of Ferrari. In such a resolution, the General Meeting must determine the price and other terms of issuance. The Board of Directors of Ferrari may have the power to issue shares if it has been authorized to do so by the General Meeting, or pursuant to the Ferrari Articles of Association. Under Dutch law, such authorization may not exceed a period of five years, but may be renewed by a resolution of the General Meeting for subsequent

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five-year periods at any time. The Board of Directors has been designated by the Ferrari Articles of Association as the competent body to issue Ferrari common shares and special voting shares up to the maximum aggregate amount of the Ferrari authorized share capital for an initial period of five years from January 2, 2016, which may be extended by the General Meeting with additional consecutive periods of up to a maximum of five years each.
Ferrari will not be required to obtain approval from a General Meeting to issue shares pursuant to the exercise of a right to subscribe for shares that was previously granted pursuant to authority granted by the shareholders or pursuant to delegated authority by the Board of Directors. The General Meeting shall, for as long as any such designation of the Board of Directors of Ferrari for this purpose is in force, no longer has authority to decide on the issuance of shares.
Rights of Pre-emption

Under Dutch law and the Ferrari Articles of Association, each Ferrari shareholder has a right of pre-emption in proportion to the aggregate nominal value of its shareholding upon the issuance of new Ferrari common shares (or the granting of rights to subscribe for Ferrari common shares). Exceptions to this right of pre-emption include the issuance of new Ferrari common shares (or the granting of rights to subscribe for common shares): (i) to employees of Ferrari or another member of its group pursuant to a stock compensation plan of Ferrari, (ii) against payment in kind (contribution other than in cash) and (iii) to persons exercising a previously granted right to subscribe for Ferrari common shares.
In the event of an issuance of special voting shares, shareholders shall not have any right of pre-emption.
The General Meeting may resolve to limit or exclude the rights of pre-emption upon an issuance of Ferrari common shares, which resolution requires approval of at least two-thirds of the votes cast, if less than half of the issued share capital is represented at the General Meeting. The Ferrari Articles of Association or the General Meeting may also designate the Board of Directors to resolve to limit or exclude the rights of pre-emption in relation to the issuance of Ferrari common shares. Pursuant to Dutch law, the designation by the General Meeting may be granted to the Board of Directors for a specified period of time of not more than five years and only if the Board of Directors has also been designated or is simultaneously designated the authority to resolve to issue Ferrari common shares. The Board of Directors is designated in the Ferrari Articles of Association as the competent body to exclude or limit rights of pre-emption for an initial period of five years from January 2, 2016, which may be extended by the General Meeting with additional periods up to a maximum of five years per period.

Repurchase of Shares
Upon agreement with the relevant Ferrari shareholder, Ferrari may acquire its own shares at any time for no consideration ( om niet ), or subject to certain provisions of Dutch law and the Ferrari Articles of Association for consideration, if: (i) Ferrari’s shareholders’ equity less the payment required to make the acquisition does not fall below the sum of called-up and paid-in share capital and any statutory reserves, (ii) Ferrari would thereafter not hold a pledge over Ferrari common shares or together with subsidiaries hold Ferrari common shares with an aggregate nominal value exceeding 50 percent of the Ferrari’s issued share capital and (iii) the Board of Directors has been authorized to do so by the General Meeting.
The acquisition of fully paid-up shares by Ferrari other than for no consideration ( om niet ) requires authorization by the General Meeting. Such authorization may be granted for a period not exceeding 18 months and shall specify the number of shares, the manner in which the shares may be acquired and the price range within which shares may be acquired. The authorization is not required for the acquisition of shares from employees of Ferrari or another member of its Group, under a scheme applicable to such employees and no authorization is required for repurchase of shares acquired in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Such shares must be officially listed on a price list of an exchange.
At a General Meeting the shareholders may resolve to designate the Board of Directors of Ferrari as the competent body to resolve on Ferrari acquiring any Ferrari’s fully paid up Ferrari common shares other than for no consideration ( om niet ) for a period of up to 18 months.
Ferrari may, jointly with its subsidiaries, hold Ferrari shares in its own capital exceeding one-tenth of its issued capital for no more than three years after acquisition of such Ferrari shares for no consideration ( om niet ) or in certain other limited circumstances in which the acquisition takes place by operation of law, such as pursuant to mergers or demergers. Any Ferrari shares held by Ferrari in excess of the amount permitted shall transfer to all members of the Board of Directors jointly at the end of the last day of such three year period. Each member of the Board of Directors shall be jointly and severally liable to compensate Ferrari for the value of the Ferrari shares at such time, with interest at the statutory rate thereon from such time.

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The term Ferrari shares in this paragraph shall include depositary receipts for shares and shares in respect of which Ferrari holds a right of pledge.
No votes may be cast at a General Meeting on the Ferrari shares held by Ferrari or its subsidiaries. Also no voting rights may be cast at a General Meeting in respect of Ferrari shares for which depositary receipts have been issued that are owned by Ferrari. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by Ferrari and its subsidiaries in Ferrari’s share capital are not excluded from the right to vote on such shares, if the right of usufruct or pledge was granted prior to the time such shares were acquired by Ferrari or its subsidiaries. Neither Ferrari nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.
Reduction of Share Capital
Shareholders at a General Meeting have the power to cancel shares acquired by Ferrari or to reduce the nominal value of the shares. A resolution to reduce the share capital requires a majority of at least two-thirds of the votes cast at the General Meeting, if less than one-half of the issued capital is present or represented at the meeting. If more than one-half of the issued share capital is present or represented at the meeting, a simple majority of the votes cast at the General Meeting is required. Any proposal for cancellation or reduction of nominal value is subject to general requirements of Dutch law with respect to reduction of share capital.
Transfer of Shares
In accordance with the provisions of Dutch law, pursuant to Article 12 of the Ferrari Articles of Association, the transfer or creation of Ferrari shares or a right in rem thereon requires a deed intended for that purpose and save when Ferrari is a party to the transaction, written acknowledgment by Ferrari of the transfer.
The transfer of Ferrari common shares that have not been entered into a book-entry system will be effected in accordance with Article 12 of the Ferrari Articles of Association.
Common shares that have been entered into the DTC book-entry system will be registered in the name of Cede & Co., as nominee for DTC and transfers of beneficial ownership of shares held through DTC will be effected by electronic transfer made by DTC participants. Article 12 of the Ferrari Articles of Association does not apply to the trading of such Ferrari common shares on a regulated market or the equivalent thereof.
Transfers of shares held outside of DTC (including Monte Titoli S.p.A., as a participant in DTC) or another direct registration system maintained by Computershare, Ferrari’s transfer agent in New York (“Transfer Agent”) and not represented by certificates are effected by a stock transfer instrument and require the written acknowledgment by Ferrari. Transfer of registered certificates is effected by presenting and surrendering the certificates to the Transfer Agent. A valid transfer requires the registered certificates to be properly endorsed for transfer as provided for in the certificates and accompanied by proper instruments of transfer and stock transfer tax stamps for, or funds to pay, any applicable stock transfer taxes.
Ferrari common shares are freely transferable. As described below, special voting shares are generally not transferable.
At any time, a holder of Ferrari common shares that are registered in the Loyalty Register (i.e. Electing Common Shares or Qualifying Common Shares) wishing to transfer such Ferrari common shares other than in limited specified circumstances ( i.e., transfers to affiliates or to relatives through succession, donation or other transfers) must first request a de-registration of such shares from the Loyalty Register and if held outside the Regular Trading System, transfer such common shares back into the Regular Trading System. After de-registration from the Loyalty Register, such Ferrari common shares no longer qualify as Electing Common Shares or Qualifying Common Shares, as a result, the holder of such Ferrari common shares is required to offer and transfer the special voting shares associated with such Ferrari common shares that were previously Qualifying Common Shares to Ferrari for no consideration ( om niet ) as described in detail in “ —Loyalty Voting Program—Terms and Conditions of the Special Voting Shares—Withdrawal of Special Voting Shares .”
Annual Accounts and Independent Auditor
Ferrari’s financial year is the calendar year. Within four months after the end of each financial year, the Board of Directors will prepare the annual accounts, which must be accompanied by an annual report and an auditors’ report and will publish the accounts and annual report and will make those available for inspection at Ferrari’s corporate address. All members of the Board of Directors are required to sign the annual accounts and in case the signature of any member is missing, the reason for this must be stated. The annual accounts are to be adopted by the General Meeting at the annual general meeting of shareholders,

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at which meeting the members of the Board of Directors will be discharged from liability for performance of their duties with respect to any matter disclosed in the annual accounts for the relevant financial year insofar this appears from the annual accounts. The annual accounts, the annual report and independent auditors’ report are made available through Ferrari’s website to the shareholders for review as from the day of the notice convening the annual general meeting of shareholders.
Payment of Dividends
Ferrari may make distributions to the shareholders and other persons entitled to the distributable profits only to the extent that its shareholders’ equity exceeds the sum of the paid-up and called up portion of the share capital and the reserves that must be maintained in accordance with Dutch law. No distribution of profits may be made to Ferrari itself for shares that Ferrari holds in its own share capital.

Ferrari may only make a distribution of dividends to the shareholders after the adoption of its statutory annual accounts demonstrating that such distribution is legally permitted. The Board of Directors may determine that other freely distributable distributions shall be made, in whole or in part, from Ferrari’s share premium reserve or from any other reserve, provided that payments from reserves may only be made to the shareholders that are entitled to the relevant reserve upon the dissolution of Ferrari and provided further that the policy of Ferrari on additions to reserves and dividends is duly observed.
Holders of special voting shares will not receive any dividend in respect of the special voting shares. However Ferrari maintains a separate dividend reserve for the special voting shares for the sole purpose of the allocation of the mandatory minimal profits that accrue to the special voting shares. This allocation establishes a reserve for the amount that would otherwise be paid. The special voting shares do not carry any entitlement to any other reserve. Any distribution out of the special dividend reserve or the partial or full release of such reserve requires a prior proposal from the Board of Directors and a subsequent resolution of the meeting of holders of special voting shares.
Insofar as the profits have not been distributed or allocated to the reserves, they may, by resolution of the General Meeting, be distributed as dividends on the Ferrari common shares only. The General Meeting may resolve, on the proposal of the Board of Directors, to declare and distribute dividends in U.S. Dollars. The Board of Directors may decide, subject to the approval of the General Meeting and the Board of Directors having been designated as the body competent to pass a resolution for the issuance of shares, that a distribution shall, wholly or partially, be made in the form of shares, or that shareholders shall be given the option to receive a distribution either in cash or in the form of shares.
The right to dividends and distributions will lapse if the dividends or distributions are not claimed within five years following the day after the date on which they first became payable. Any dividends or other distributions made in violation of the Ferrari Articles of Association or Dutch law will have to be repaid by the shareholders who knew or should have known, of such violation.
General Meetings and Voting Rights
Annual Meeting
An annual General Meeting must be held within six months from the end of Ferrari’s preceding financial year. The purpose of the annual General Meeting is to discuss, among other things, the annual report, the adoption of the annual accounts, allocation of profits (including the proposal to distribute dividends), release of members of the Board of Directors from liability for their management and supervision, and other proposals brought up for discussion by the Board of Directors.
General Meeting and Place of Meetings
Other General Meetings will be held if requested by the Board of Directors, the chairman of the Board of Directors, the chairperson or the chief executive officer, or by the written request (stating the exact subjects to be discussed) of one or more shareholders representing in aggregate at least 10 percent of the issued share capital of the company (taking into account the relevant provisions of Dutch law, and the Ferrari Articles of Association and the applicable stock exchange regulations). General Meetings will be held in Amsterdam or Haarlemmermeer (Schiphol Airport), the Netherlands.
Convocation Notice and Agenda
General Meetings can be convened by a notice, specifying the subjects to be discussed, the place and the time of the meeting and admission and participation procedure, issued at least 15 days before the meeting or 42 days if shares of Ferrari or depositary receipts issued with cooperation of Ferrari have been admitted to trading on the MTA or another regulated market as

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referred to in Article 1:1 of the Dutch Financial Supervision Act. All convocations, announcements, notifications and communications to shareholders and other persons entitled to attend the General Meeting must be made on the company’s corporate website in accordance with the relevant provisions of Dutch law. The agenda for a General Meeting may contain the items requested by one or more shareholders representing at least three percent of the issued share capital of the company, taking into account the relevant provisions of Dutch law. Requests must be made in writing, including the reasons for adding the relevant item on the agenda, and received by the Board of Directors at least 60 days before the day of the meeting.
Admission and Registration
Each shareholder entitled to vote, and each person holding a usufruct or pledge to whom the right to vote on the Ferrari common shares accrues, shall be authorized to attend the General Meeting, to address the General Meeting and to exercise its voting rights. The registration date of each General Meeting is the twenty-eighth day prior to the date of the General Meeting so as to establish which shareholders are entitled to attend and vote at the General Meeting. Only holders of shares and other persons entitled to vote or attend the General Meeting, at such registration date are entitled to attend and vote at the General Meeting. The convocation notice for the meeting shall state the registration date and the manner in which the persons entitled to attend the General Meeting may register and exercise their rights.
Those entitled to attend a General Meeting may be represented at a General Meeting by a proxy authorized in writing. The requirement that a proxy must be in written form is also fulfilled when it is recorded electronically.
Members of the Board of Directors have the right to attend a General Meeting. In these General Meetings they have an advisory role.
Voting Rights
Each Ferrari common share and each special voting share confers the right on the holder to cast one vote at a General Meeting. Resolutions are passed by a simple majority of the votes cast, unless Dutch law or the Ferrari Articles of Association prescribes a larger majority. Under Dutch law and/or the Ferrari Articles of Association, the following matters require at least two-thirds of the votes cast at a meeting if less than half of the issued share capital is present or represented:
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a resolution to reduce the issued share capital;
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a resolution to amend the Ferrari Articles of Association;
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a resolution to restrict or exclude rights of pre-emption;
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a resolution to authorize the Board of Directors to restrict or exclude shareholder rights of pre-emption;
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a resolution to enter into a legal merger or a legal demerger; or
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a resolution to dissolve Ferrari.
Under Dutch law, a resolution to adopt the remuneration policy requires three-fourths of the votes validly cast, unless the Ferrari Articles of Association include a lower threshold which could be inserted through an AGM resolution.
Limitations on rights of non-resident or foreign shareholders
There are no limitations imposed by Dutch law or by the Ferrari Articles of Association on the rights of non-resident or foreign shareholders to hold or vote Ferrari common shares.
Shareholders’ Votes on Certain Transactions
Any important change in the identity or character of Ferrari must be approved by the General Meeting, including (i) the termination transfer to a third party of the business of Ferrari or practically the entire business of Ferrari; (ii) the entry into or breaking off of any long-term cooperation of Ferrari or a subsidiary with another legal entity or company or as a fully liable partner of a general partnership or limited partnership, where such entry into or breaking off is of far-reaching importance to Ferrari; and (iii) the acquisition or disposal by Ferrari or a subsidiary of an interest in the capital of a company with a value of at least one-third of Ferrari’s assets according to the consolidated statement of financial position with explanatory notes included in the last adopted annual accounts of Ferrari.

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Amendments to the Ferrari Articles of Association, including Variation of Rights
A resolution of the General Meeting to amend the Ferrari Articles of Association or to wind up Ferrari may be approved only if proposed by the Board of Directors and must be approved by a vote of a majority of at least two-thirds of the votes cast if less than one-half of the issued share capital is present or represented at such General Meeting.
The rights of shareholders may be changed only by amending the Ferrari Articles of Association in compliance with Dutch law.
Dissolution and Liquidation
The General Meeting may resolve to dissolve Ferrari, upon a proposal of the Board of Directors thereto. A majority of at least two-thirds of the votes cast shall be required if less than one-half of the issued capital is present or represented at the meeting. In the event of dissolution, Ferrari will be liquidated in accordance with Dutch law and the Ferrari Articles of Association and the liquidation shall be arranged by the members of the Board of Directors, unless the General Meeting appoints other liquidators. During liquidation, the provisions of the Ferrari Articles of Association will remain in force as long as possible.
If Ferrari is dissolved and liquidated, whatever remains of Ferrari’s equity after all its debts have been discharged shall first be applied to distribute the aggregate balance of share premium reserves and other reserves (other than the special dividend reserve), to holders of Ferrari common shares in proportion to the aggregate nominal value of the Ferrari common shares held by each holder; secondly, from any balance remaining, an amount equal to the aggregate amount of the nominal value of the Ferrari common shares will be distributed to the holders of Ferrari common shares in proportion to the aggregate nominal value of Ferrari common shares held by each of them; thirdly, from any balance remaining, an amount equal to the aggregate amount of the special voting shares dividend reserve will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; fourthly, from any balance remaining, the aggregate amount of the nominal value of the special voting shares will be distributed to the holders of special voting shares in proportion to the aggregate nominal value of the special voting shares held by each of them; and, lastly, any balance remaining will be distributed to the holders of Ferrari common shares in proportion to the aggregate nominal value of Ferrari common shares held by each of them.
Liability of Directors
Under Dutch law, the management of a company is a joint undertaking and each member of the Board of Directors can be held jointly and severally liable to Ferrari for damages in the event of improper or negligent performance of their duties. Further, members of the Board of Directors can be held liable to third parties based on tort, pursuant to certain provisions of the Dutch Civil Code. All directors are jointly and severally liable for failure of one or more co-directors. An individual director is only exempted from liability if he proves that he cannot be held seriously culpable for the mismanagement and that he has not been negligent in seeking to prevent the consequences of the mismanagement. In this regard a director may, however, refer to the allocation of tasks between the directors. In certain circumstances, directors may incur additional specific civil and criminal liabilities.
Indemnification of Directors and Officers
Under Dutch law, indemnification provisions may be included in a company’s articles of association. Under the Ferrari Articles of Association, Ferrari is required to indemnify its directors, officers, former directors, former officers and any person who may have served at Ferrari’s request as a director or officer of another company in which Ferrari owns shares or of which Ferrari is a creditor who were or are made a party or are threatened to be made a party or are involved in, any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, against any and all liabilities, damages, reasonable and documented expenses (including reasonably incurred and substantiated attorney’s fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlement in connection with such Proceeding by any of them. Notwithstanding the above, no indemnification shall be made in respect of any claim, issue or matter as to which any of the above-mentioned indemnified persons shall be adjudged to be liable for gross negligence or willful misconduct in the performance of such person’s duty to Ferrari. This indemnification by Ferrari is not exclusive of any other rights to which those indemnified may be entitled otherwise. Ferrari has purchased directors’ and officers’ liability insurance for the members of the Board of Directors and certain other officers, substantially in line with that purchased by similarly situated companies.

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Dutch Corporate Governance Code
The Dutch Corporate Governance Code contains principles and best practice provisions that regulate relations between the board and the shareholders (including the General Meeting). The Dutch Corporate Governance Code is divided into five chapters which address the following topics: (i) long-term value creation; (ii) effective management and supervision; (iii) remuneration; (iv) the general meeting; and (v) one-tier governance structure.
Dutch companies whose shares are listed on a government-recognized stock exchange, such as the NYSE, are required under Dutch law to disclose in their annual reports whether or not they apply the provisions of the Dutch Corporate Governance Code and, in the event that they do not apply a certain provision, to explain the reasons why they have chosen to deviate.
Ferrari acknowledges the importance of good corporate governance and supports the best practice provisions of the Dutch Corporate Governance Code. Therefore, Ferrari intends to comply with the relevant best practice provisions of the Dutch Corporate Governance Code except as may be noted from time to time in Ferrari’s annual reports.
The Dutch Corporate Governance Code has been revised in December 2016 and the revised Dutch Corporate Governance Code entered into force on January 1, 2018, being applicable retroactively as from the financial year 2017. Consequently, Ferrari has reported in 2018 regarding its application of the revised Dutch Corporate Governance Code with respect to the financial year 2017.
Disclosure of Holdings under Dutch Law
Home member state for purposes of the EU Transparency Directive
The Netherlands is Ferrari’s home member state for the purposes of the EU Transparency Directive (Directive 2004/109/EC, as amended). As of the listing of the Ferrari common shares on the MTA, we are subject to financial and other reporting obligations under the AFS and the Dutch Financial Reporting Supervision Act ( Wet toezicht financiële verslaggeving ) (DFRSA), which both implement the EU Transparency Directive in the Netherlands.
Disclosure of information
Ferrari is required to publish its annual report (consisting of the audited annual accounts, the annual report and the responsibility statement) within four months after the end of each financial year and its half-yearly figures within three months after the end of the first six months of each financial year.
Shareholder disclosure and reporting obligations
As a result of the listing of the Ferrari common shares on the MTA, chapter 5.3 of the Dutch act on Financial Supervision (“AFS”) applies, pursuant to which any person who, directly or indirectly, acquires or disposes of an actual or potential capital interest and/or actual or potential voting rights in Ferrari must promptly give written notice to the Netherlands Authority for the Financial Markets ( stichting Autoriteit Financiële Markten , the “AFM”) of such acquisition or disposal by means of a standard form if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 40 percent, 50 percent, 60 percent, 75 percent and 95 percent.
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, inter alia, be taken into account: (i) shares and/or voting rights directly held (or acquired or disposed of) by any person, (ii) shares and/or voting rights held (or, acquired or disposed of) by such person’s controlled entities or by a third party for such person’s account, (iii) voting rights held (or acquired or disposed of) by a third party with whom such person has concluded an oral or written voting agreement, (iv) voting rights acquired pursuant to an agreement providing for a temporary transfer of voting rights in consideration for a payment, and (v) shares which such person, or any controlled entity or third party referred to above, may acquire pursuant to any option or other right to acquire shares.
As a consequence of the above, special voting shares must be added to Ferrari common shares for the purposes of the above thresholds.

Controlled entities (within the meaning of the Dutch Financial Supervision Act) do not themselves have notification obligations under the AFS as their direct and indirect interests are attributed to their (ultimate) parent. If a person who has a

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three percent or larger interest in Ferrari’s share capital or voting rights ceases to be a controlled entity it must immediately notify the AFM and all notification obligations under the AFS will become applicable to such former controlled entity.
Special rules apply to the attribution of shares and/or voting rights which are part of the property of a partnership or other form of joint ownership. A holder of a pledge or right of usufruct in respect of shares can also be subject to notification obligations, if such person has, or can acquire, the right to vote on the shares. The acquisition of (conditional) voting rights by a pledgee or beneficial owner may also trigger notification obligations as if the pledgee or beneficial owner were the legal holder of the shares and/or voting rights.
Furthermore, when calculating the percentage of capital interest, a person is also considered to be in possession of shares if (i) such person holds a financial instrument the value of which is (in part) determined by the value of the shares or any distributions associated therewith and which does not entitle such person to acquire any shares, (ii) such person may be obliged to purchase shares on the basis of an option, or (iii) such person has concluded another contract whereby such person acquires an economic interest comparable to that of holding a share.
If a person’s capital interest and/or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in Ferrari’s issued and outstanding share capital or voting rights, such person is required to make a notification not later than on the fourth trading day after the AFM has published Ferrari’s notification as described below.

Following the implementation of Directive 2013/50/EU into the AFS, every holder of three percent more of the issued and outstanding share capital or voting rights whose interest has changed compared to his most recent notification, and which holder knows or should know that pursuant to this change his interest reaches or crosses a threshold as a result of certain acts (as described above and including the exchange of a financial instrument or a contract (pursuant to which the holder is deemed to have issued and outstanding shares or voting rights at his disposal)), must notify the AFM of this change.
Ferrari is required to notify the AFM promptly of any change of one percent or more in its issued and outstanding share capital or voting rights since a previous notification. Other changes in Ferrari’s issued and outstanding share capital or voting rights must be notified to the AFM within eight days after the end of the quarter in which the change occurred.
In addition to the above described notification obligations pertaining to capital interest or voting rights, pursuant to Regulation (EU) No 236/2012, as amended, notification must be made of any net short position of 0.2% in the issued share capital of Ferrari, and of every subsequent 0.1% above this threshold. Notifications starting at 0.5% and every subsequent 0.1% above this threshold will be made public via the short selling register of the AFM. Furthermore, gross short positions shall be notified in the event that a threshold is reached, exceeded or fallen below. With regard to gross short positions, the same disclosure thresholds as for holders of capital interests and/or voting rights apply.
Furthermore, each member of the Board of Directors must notify the AFM:
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within two weeks after his/her appointment of the number of shares he/she holds and the number of votes he/she is entitled to cast in respect of Ferrari’s issued and outstanding share capital, and
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subsequently of each change in the number of shares he/she holds and of each change in the number of votes he/she is entitled to cast in respect of Ferrari’s issued and outstanding share capital, immediately after the relevant change.

The AFM keeps a public register of all notifications made pursuant to these disclosure obligations and publishes any notification received which can be accessed via www.afm.nl. The notifications referred to in this paragraph should be made in writing by means of a standard form or electronically through the notification system of the AFM.
Non-compliance with these disclosure obligations is an economic offense and may lead to criminal prosecution. The AFM may impose administrative penalties for non-compliance, and the publication thereof. In addition, a civil court can impose measures against any person who fails to notify or incorrectly notifies the AFM of matters required to be notified. A claim requiring that such measures be imposed may be instituted by Ferrari and/or by one or more shareholders who alone or together with others represent at least three percent of the issued and outstanding share capital of Ferrari or are able to exercise at least three percent of the voting rights. The measures that the civil court may impose include:

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an order requiring appropriate disclosure;


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•
suspension of the right to exercise the voting rights for a period of up to three years as determined by the court;

•
voiding a resolution adopted by the General Meeting, if the court determines that the resolution would not have been adopted but for the exercise of the voting rights of the person with a duty to disclose, or suspension of a resolution adopted by the general meeting of shareholders until the court makes a decision about such voiding; and

•
an order to refrain, during a period of up to five years as determined by the court, from acquiring shares and/or voting rights in Ferrari. Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Shareholders are advised to consult with their own legal advisers to determine whether the disclosure obligations apply to them.
Mandatory Bid Requirement
Under Dutch law any person, acting alone or in concert with others, who, directly or indirectly, acquires 30 percent or more of Ferrari’s voting rights will be obliged to launch a public offer for all outstanding shares in Ferrari’s share capital. An exception is made for shareholders who, whether alone or acting in concert with others, had an interest of at least 30 percent of Ferrari’s voting rights before the shares were first listed on the MTA and who still maintained such an interest after such first listing. Immediately after the first listing of Ferrari common shares on the MTA, Exor held more than 30 percent of Ferrari’s voting rights. Therefore Exor’s interest in Ferrari was grandfathered and the exception that applies to it will continue to apply to it for as long as its holding of shares represents over 30 percent of Ferrari’s voting rights.
Dutch Financial Reporting Supervision Act

On the basis of the Dutch Financial Reporting Supervision Act ( Wet toezicht financiële verslaggeving ), or the FRSA, the AFM supervises the application of financial reporting standards by, amongst others, companies whose official seat is in the Netherlands and whose securities are listed on a regulated market within the EU or in a non-EU country on a system similar to a regulated market.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from Ferrari regarding its application of the applicable financial reporting standards and (ii) recommend to us the making available of further explanations. If we do not comply with such a request or recommendation, the AFM may request that the Enterprise Chamber order us to (i) make available further explanations as recommended by the AFM, (ii) provide an explanation of the way we have applied the applicable financial reporting standards to our financial reports or (iii) prepare our financial reports in accordance with the Enterprise Chamber’s instructions.
Compulsory Acquisition
Pursuant to article 2:92a of the Dutch Civil Code (“DCC”), a shareholder who, for its own account, holds at least 95 percent of the issued share capital of Ferrari may institute proceedings against the other shareholders jointly for the transfer of their shares to it. The proceedings are held before the Dutch Enterprise Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders in accordance with the provisions of the Dutch Code of Civil Procedure. The Enterprise Chamber may grant the claim for the squeeze-out in relation to all minority shareholders and will determine the price to be paid for the shares, if necessary after appointment of one or three expert(s) who will offer an opinion to the Enterprise Chamber on the value to be paid for the shares of the minority shareholders. Once the order to transfer becomes final before the Enterprise Chamber, the person acquiring the shares must give written notice of the date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to it. Unless the addresses of all of them are known to it, it must also publish the same in a Dutch daily newspaper with a national circulation. A shareholder can only appeal against the judgment of the Enterprise Chamber before the Dutch Supreme Court.
In addition, pursuant to article 2:359c of the DCC, an offeror under a public offer is also entitled to start a squeeze out procedure, within three months after the public offer, if following the public offer it holds at least 95% of the issued share capital of Ferrari representing at least 95% of the total voting rights. In the event of a mandatory offer, the mandatory offer price is in principle deemed to be a reasonable price, which has to be accepted by minority shareholders. In the event of a voluntary public offer, the offer price is considered reasonable if at least 90% of the shares have been acquired under the public offer.

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Pursuant to article 2:359d of the DCC, if the offeror has acquired at least 95% of the issued share capital of Ferrari representing at least 95% of the total voting rights, each remaining minority shareholder is entitled to demand a squeeze out. This procedure must be initiated with the Enterprise Chamber within three months after the end of the period for tendering Shares in the public offer. With regard to the price per share to be paid by the majority Shareholder, the same procedure as for squeeze out proceedings initiated by the offeror, as set out in the previous paragraph, applies.
Disclosure of Trades in Listed Securities
Disclosure under Dutch Law
Pursuant to the AFS and the Market Abuse Regulation (EU) No 596/2014 (the “Market Abuse Regulation”), each of the members of the Board of Directors and any other person discharging managerial responsibilities within Ferrari and who in that capacity is authorized to make decisions affecting the future developments and business prospects of Ferrari and who has regular access to inside information relating, directly or indirectly, to Ferrari (each, an “Insider”) must notify the AFM of all transactions, conducted or carried out for his/her own account, relating to Ferrari common shares, special voting shares or financial instruments, the value of which is (in part) determined by the value of Ferrari common shares or special voting shares.
In addition, persons who are closely associated with members of the Board of Directors or any of the other Insiders must notify the AFM of all transactions conducted for their own account relating to Ferrari’s shares or financial instruments, the value of which is (in part) determined by the value of Ferrari’s shares. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse, (ii) dependent children, (iii) other relatives who have shared the same household for at least one year at the relevant transaction date, and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a member of the Board of Directors or any other Insider or by a person referred to under (i), (ii) or (iii) above.
The AFM must be forthwith notified of transactions effected in either Ferrari’s shares or financial instruments, the value of which is (in part) determined by the value of Ferrari’s shares, following the transaction date by means of a standard form. Notifications under the Market Abuse Regulation may however be postponed until the date that the value of the transactions carried out on a person’s own account, together with the transactions carried out by the persons associated with that person, reaches or exceeds the amount of €5,000 in the calendar year in question. The AFM keeps a public register of all notifications made pursuant to the AFS and the Market Abuse Regulation.
Ferrari is required to make inside information public. Inside information is precise information directly or indirectly relating to the issuer or the trade in its securities which has not yet been made public and publication of which could significantly affect the trading price of the securities. Ferrari must also provide the Consob with this inside information at the time of publication. Furthermore, Ferrari must without delay publish the inside information on its website and keep it available on Ferrari’s website for at least five years.
It is prohibited for any person to make use of inside information by conducting, effecting or attempting to conduct or effect a transaction in relevant financial instruments. In addition, it is prohibited for any person to pass on inside information relating to Ferrari or the trade in its securities to a third party or to recommend or induce, on the basis of inside information, any person to conduct a transaction in securities of Ferrari. Furthermore, it is prohibited for any person to manipulate or attempt to manipulate the market, for instance by conducting transactions which could lead to an incorrect or misleading signal of the supply of, the demand for or the price of the securities. The provisions of the Market Abuse Regulation concerning insider trading and manipulation of the market are self-executing and immediately applicable Italian law. Moreover, on October 2016 CONSOB started a process for the review (in light of the Market Abuse Regulation) of certain regulatory provisions contained in the Issuers’ Regulation no. 11971/1999.

Non-compliance with these reporting obligations could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication thereof), imprisonment or other sanctions.
Shareholder Disclosure and Reporting Obligations under U.S. Law
Holders of Ferrari shares are subject to certain U.S. reporting requirements under the Securities Exchange Act of 1934 (the “Exchange Act”) for shareholders owning more than 5 percent of any class of equity securities registered pursuant to Section 12 of the Exchange Act. Among the reporting requirements are disclosure obligations intended to inform the market of significant accumulations of shares that may lead to a change of control of an issuer.

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If Ferrari were to fail to qualify as a foreign private issuer in the future, Section 16(a) of the Exchange Act would require Ferrari’s directors and executive officers, and persons who own more than ten percent of a registered class of Ferrari’s equity securities, to file reports of ownership of, and transactions in, Ferrari’s equity securities with the SEC. Such directors, executive officers and ten percent stockholders would also be required to furnish Ferrari with copies of all Section 16 reports they file.

Disclosure Requirements under Italian law

Summarized below are the most significant requirements to be complied with by Ferrari in connection with the admission to listing of Ferrari common shares on the MTA. The breach of the obligations described below may result in the application of fines and criminal penalties (including, for instance, those provided for insider trading and market manipulation). Further requirements may be imposed by CONSOB and/or Borsa Italiana as a result of the listing of Ferrari common shares on the MTA.

In particular, the following main disclosure obligations provided for by the Legislative Decree no. 58/1998, or the Italian Financial Act, effective as of the date of this document shall apply to Ferrari, article 92 (equal treatment principle), article 114 (information to be provided to the public), article 114- bis (information to be provided to the market concerning the allocation of financial instruments to corporate officers, employees and collaborators), article 115 (information to be disclosed to CONSOB) and article 180 and the following (relating to insider trading and market manipulation). In addition to the above, the applicable provisions set forth under the market rules (including those relating to the timing for the payment of dividends) shall apply to Ferrari.

Disclosure of Inside Information

Pursuant to the Market Abuse Regulation, Ferrari shall disclose to the public, without delay, any inside information which: (i) is of a precise nature, (ii) has not been made public, (iii) relates, directly or indirectly, to Ferrari or Ferrari’s common shares, and (iv) if it were made public, would be likely to have a significant effect on the prices of Ferrari’s common shares or on the price of related derivative financial instruments (the “Inside Information”).

In this regard, Inside Information shall be deemed to be of a precise nature if: (a) it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred or which may reasonably be expected to occur and (b) it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or events on the prices of the financial instruments (i.e., Ferrari’s common shares) or the related derivative financial instruments.

The above disclosure requirement shall be complied with through the publication of a press release by Ferrari, in accordance with the modalities set forth under the Market Abuse Regulation, Dutch and Italian law, disclosing to the public the relevant Inside Information. The provisions of the MAR concerning the disclosure of inside information are self-executing and immediately applicable under Italian law.

Under specific circumstances, CONSOB may at any time request: (a) Ferrari to disclose to the public specific information or documentation where deemed appropriate or necessary or alternatively (b) to be provided with specific information or documentation. For this purpose, CONSOB has wide powers to, among other things, carry out inspections or request information to the members of the managing board, the members of the supervisory board or to the external auditor.

Ferrari shall publish and transmit to CONSOB any information disseminated in any non EU-countries where Ferrari’s common shares are listed (i.e., the United States), if this information is significant for the purposes of the evaluation of Ferrari’s common shares listed on the MTA.

Insiders’ Register

Pursuant to the Market Abuse Regulation, Ferrari and its subsidiaries, as well as persons acting on their behalf or for their account, shall draw up, and keep promptly updated, a list of persons who, in the exercise of their employment, profession or duties, have access to Inside Information. Ferrari shall provide such list to the competent authority at its request.




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Public Tender Offers
Certain rules provided for under Italian law with respect to both voluntary and mandatory public tender offers shall apply to any offer launched for Ferrari’s common shares. In particular, among other things, the provisions concerning the tender offer price, the content of the offer document and the disclosure of the tender offer will be subject to the supervision by CONSOB and Italian law.
Election and Removal of Directors
The Ferrari Articles of Association provide that the Board of Directors shall be composed of three or more members.

Directors are appointed by a simple majority of the votes validly cast at a General Meeting. The General Meeting may at any time suspend or dismiss any director.

C. Material Contracts
For a discussion of our syndicated facility, and issuance of notes please see “Item 5.B. Liquidity and Capital Resources ”. For a description of Ferrari’s equity incentive plan please see “”Item 6.B. Compensation ”.
D. Exchange Controls
Under Dutch law, there are no exchange control restrictions on investments in, or payments on, the Ferrari common shares. There are no special restrictions in the Ferrari Articles of Association or Dutch law that limit the right of shareholders who are not citizens or residents of the Netherlands to hold or vote the Ferrari common shares.

E. Taxation
Material United States Federal Income Tax Consequences
This section describes the material U.S. federal income tax consequences of owning Ferrari common shares and special voting shares. It applies solely to U.S. holders (as defined below) that hold common shares or special voting shares of Ferrari as capital assets. This section does not apply to holders subject to special rules, including:
•
a dealer in securities or foreign currencies,
•
a regulated investment company,
•
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,
•
a tax-exempt organization,
•
a bank, financial institution, or insurance company,
•
a person liable for the alternative minimum tax,
•
a person that actually or constructively owns 10 percent or more, by vote or value, of Ferrari,
•
a person that holds common shares or special voting shares of Ferrari as part of a straddle or a hedging, conversion, or other risk reduction transaction for U.S. federal income tax purposes,
•
a person that acquired common shares or special voting shares of Ferrari pursuant to the exercise of employee stock options or otherwise as compensation, or
•
a person whose functional currency is not the U.S. Dollar.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations, published rulings and court decisions, as well as on applicable tax treaties, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis.

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If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in an entity treated as a partnership for U.S. federal income tax purposes holding shares should consult its tax advisors with regard to the U.S. federal income tax treatment of the ownership of Ferrari common shares.
Holders should consult their own tax advisors regarding the U.S. federal, state and local and foreign and other tax consequences of owning and disposing of Ferrari common shares in their particular circumstances.
For purposes of this discussion, a “U.S. holder” is a beneficial owner of common shares of Ferrari that is:
•
an individual that is a citizen or resident of the United States;
•
a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States;
•
an estate whose income is subject to U.S. federal income tax regardless of its source; or
•
a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) the trust has made a valid election under applicable Treasury Regulations to be treated as a U.S. person.
Taxation of Dividends
Under the U.S. federal income tax laws, and subject to the discussion of PFIC taxation below, a U.S. holder must include in its gross income the gross amount of any dividend paid by Ferrari to the extent of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Dividends will be taxed as ordinary income to the extent that they are paid out of Ferrari’s current or accumulated earnings and profits. Dividends paid to a non-corporate U.S. holder by certain “qualified foreign corporations” that constitute qualified dividend income are taxable to the holder at the preferential rates applicable to long-term capital gains provided that the holder holds the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. For this purpose, common shares of Ferrari are treated as stock of a “qualified foreign corporation” if Ferrari is eligible for the benefits of an applicable comprehensive income tax treaty with the United States or if such stock is readily tradable on an established securities market in the United States. The common shares of Ferrari are listed on the New York Stock Exchange and Ferrari expects to be eligible for the benefits of such a treaty. Accordingly, subject to the discussion of PFIC taxation below, dividends Ferrari pays with respect to the shares are expected to constitute qualified dividend income, assuming the holding period requirements are met. However, no assurance can be given that the common shares of Ferrari will be treated as readily tradable on an established securities market in the United States or that Ferrari will qualify for the benefits of a comprehensive income tax treaty with the United States.
A U.S. holder must include any foreign tax withheld from the dividend payment in this gross amount even though the holder does not in fact receive the amount withheld. The dividend is taxable to a U.S. holder when the U.S. holder receives the dividend, actually or constructively.
The dividend will not be eligible for the dividends-received deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. holder’s basis in Ferrari common shares, causing a reduction in the U.S. holder’s adjusted basis in Ferrari common shares, and thereafter as capital gain.
Subject to certain limitations, any non-U.S. tax withheld and paid over to a non-U.S. taxing authority is eligible for credit against a U.S. holder’s U.S. federal income tax liability except to the extent a refund of the tax withheld is available to the U.S. holder under non-U.S. tax law or under an applicable tax treaty. The amount allowed to a U.S. holder as a credit is limited to the amount of the U.S. holder’s U.S. federal income tax liability that is attributable to income from sources outside the U.S. and is computed separately with respect to different types of income that the U.S. holder receives from non-U.S. sources. Subject to the discussion below regarding Section 904(h) of the Code, dividends paid by Ferrari will be foreign source income and will generally be “passive” income for purposes of computing the foreign tax credit allowable to a U.S. holder.
Under Section 904(h) of the Code, dividends paid by a foreign corporation that is treated as 50 percent or more owned, by vote or value, by U.S. persons may be treated as U.S. source income (rather than foreign source income) for foreign tax credit purposes, to the extent the foreign corporation earns U.S. source income, unless such corporation has less than 10 percent of applicable earnings and profits attributable to sources within the U.S. In certain circumstances, U.S. holders may be able to choose the benefits of Section 904(h)(10) of the Code and elect to treat dividends that would otherwise be U.S. source dividends as

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foreign source dividends, but in such a case the foreign tax credit limitations would be separately determined with respect to such “resourced” income. In general, therefore, the application of Section 904(h) of the Code may adversely affect a U.S. holder’s ability to use foreign tax credits. Ferrari does not believe that it is 50 percent or more owned by U.S. persons. In addition, Ferrari believes that its earnings and profits attributable to sources within the U.S. will not exceed 10 percent of applicable earnings and profits. However, these conclusions are factual determinations and are subject to change; no assurance can therefore be given that Ferrari may not be treated as 50 percent or more owned by U.S. persons for purposes of Section 904(h) of the Code or that less than 10 percent of Ferrari’s earnings and profits will be attributable to sources within the U.S. U.S. holders are strongly urged to consult their own tax advisors regarding the possible impact if Section 904(h) of the Code should apply.

Taxation of Capital Gains
Subject to the discussion of PFIC taxation and expected tax consequences of the Separation below, a U.S. holder that sells or otherwise disposes of its Ferrari common shares will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. Dollar value of the amount that the U.S. holder realizes and the U.S. holder’s tax basis in those shares. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will be U.S. source income or loss for foreign tax credit limitation purposes. The deduction of capital losses is subject to limitations.
Loyalty Voting Program
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSITION OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE U.S. HOLDERS TO CONSULT THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF SPECIAL VOTING SHARES.
Receipt of special voting shares
If a U.S. holder receives special voting shares, the tax consequences of the receipt of special voting shares is unclear. While distributions of stock are tax-free in certain circumstances, it is possible that the distribution of special voting shares could be treated as a distribution subject to tax as described above in “— Taxation of Dividends ” if such distribution were considered to result in a “disproportionate distribution.” If the distribution of special voting shares were so treated, the amount of the distribution should equal the fair market value of the special voting shares received. Ferrari believes and intends to take the position that the value of each special voting share is minimal. However, because the fair market value of the special voting shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assets that the value of the special voting shares (and thus the amount of the distribution) as determined by Ferrari is incorrect.
Ownership of special voting shares
Ferrari believes that U.S. holders holding special voting shares should not have to recognize income in respect of amounts transferred to the special voting shares dividend reserve that are not paid out as dividends. Section 305 of the Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends are actually received on such shares if the preferred shares are redeemable at a premium and the redemption premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate in corporate growth to any significant extent. Ferrari believes that Section 305 of the Code should not apply to any amounts transferred to the special voting shares dividend reserve that are not paid out as dividends so as to require current income inclusion by U.S. holders because, among other things, (i) the special voting shares are not redeemable on a specific date and a U.S. holder is only entitled to receive amounts in respect of the special voting shares upon liquidation, (ii) Section 305 of the Code does not require the recognition of income in respect of a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts transferred to the special voting shares dividend reserve that are not paid out as dividends are considered redemption premium, the amount of the redemption premium is likely to be “ de minimis ” as such term is used in the applicable Treasury Regulations. Ferrari therefore intends to take the position that the transfer of amounts to the special voting shares dividend reserve that are not paid out as dividends does not result in a “constructive distribution,” and this determination is binding on all U.S. holders of special voting shares other than a U.S. holder that explicitly discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the tax treatment of the loyalty voting program is unclear and because Ferrari’s determination is not binding on the IRS, it is possible that the IRS could disagree with Ferrari’s determination and require current income inclusion in respect of such amounts transferred to the special voting shares dividend reserve that are not paid out as dividends.

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Disposition of special voting shares
The tax treatment of a U.S. holder that has its special voting shares redeemed for zero consideration after removing its common shares from the Loyalty Register is unclear. It is possible that a U.S. holder would recognize a loss to the extent of the U.S. holder’s basis in its special voting shares. Such loss would be a capital loss and would be a long-term capital loss if a U.S. holder has held its special voting shares for more than one year. It is also possible that a U.S. holder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead a U.S. holder should increase the basis in its Ferrari common shares by an amount equal to the basis in its special voting shares. Such basis increase in a U.S. holder’s Ferrari common shares would decrease the gain, or increase the loss, that a U.S. holder would recognize upon the sale or other taxable disposition of its Ferrari common shares.
THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING PROGRAM IS UNCLEAR AND U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF SPECIAL VOTING SHARES.
PFIC Considerations
Ferrari believes that shares of its stock will not be stock of a PFIC for U.S. federal income tax purposes, but this conclusion is based on a factual determination made annually and thus is subject to change. As discussed in greater detail below, if shares of Ferrari stock were to be treated as stock of a PFIC, gain realized (subject to the discussion below regarding a mark-to-market election) on the sale or other disposition of shares of Ferrari stock would not be treated as capital gain, and a U.S. holder would be treated as if such U.S. holder had realized such gain and certain “excess distributions” ratably over the U.S. holder’s holding period for its shares of Ferrari stock and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a U.S. holder’s shares of Ferrari stock would be treated as stock in a PFIC if Ferrari were a PFIC at any time during such U.S. holder’s holding period in the shares. Dividends received from Ferrari would not be eligible for the special tax rates applicable to qualified dividend income if Ferrari were treated as a PFIC in the taxable years in which the dividends are paid or in the preceding taxable year (regardless of whether the U.S. holder held shares of Ferrari stock in such year) but instead would be taxable at rates applicable to ordinary income.
Ferrari would be a PFIC with respect to a U.S. holder if for any taxable year in which the U.S. holder held shares of Ferrari stock, after the application of applicable “look-through rules”:
•
75 percent or more of Ferrari’s gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations); or
•
at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of passive income.
Because the determination whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination, the IRS might not agree that Ferrari is not a PFIC. Moreover, no assurance can be given that Ferrari would not become a PFIC for any future taxable year if there were to be changes in Ferrari’s assets, income or operations.
If Ferrari were to be treated as a PFIC for any taxable year included in whole or in part in a U.S. holder’s holding period of Ferrari and such U.S. holder is treated as owning shares of Ferrari stock for purposes of the PFIC rules (and regardless of whether Ferrari remains a PFIC for subsequent taxable years), the U.S. holder (i) would be liable to pay U.S. federal income tax at the highest applicable income tax rates on (a) ordinary income upon the receipt of excess distributions (the portion of any distributions received by the U.S. holder on shares of Ferrari stock in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. holder in the three preceding taxable years or, if shorter, the U.S. holder’s holding period for the Ferrari common shares) and (b) on any gain from the disposition of shares of Ferrari stock, plus interest on such amounts, as if such excess distributions or gain had been recognized ratably over the U.S. holder’s holding period of the shares of Ferrari stock, and (ii) may be required to annually file Form 8621 with the IRS reporting information concerning Ferrari.
If Ferrari were to be treated as a PFIC for any taxable year and provided that Ferrari common shares are treated as “marketable stock” within the meaning of applicable Treasury Regulations, which Ferrari believes will be the case, a U.S. holder may make a mark-to-market election with respect to such U.S. holder’s common shares. Under a mark-to-market election, any excess of the fair market value of the Ferrari common shares at the close of any taxable year over the U.S. holder’s adjusted tax

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basis in the Ferrari common shares is included in the U.S. holder’s income as ordinary income. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. In addition, the excess, if any, of the U.S. holder’s adjusted tax basis at the close of any taxable year over the fair market value of the Ferrari common shares is deductible in an amount equal to the lesser of the amount of the excess or the amount of the net mark-to-market gains that the U.S. holder included in income in prior years. A U.S. holder’s tax basis in Ferrari common shares would be adjusted to reflect any such income or loss. Gain realized on the sale, exchange or other disposition of Ferrari common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of Ferrari common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. holder.
The adverse consequences of owning stock in a PFIC could also be mitigated if a U.S. holder makes a valid “qualified electing fund” election (“QEF election”), which, among other things, would require a U.S. holder to include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, based on earnings and profits as determined for U.S. federal income tax purposes. Because of the administrative burdens involved, Ferrari does not intend to provide information to its holders that would be required to make such election effective.
A U.S. holder that holds shares of Ferrari stock during a period when Ferrari is a PFIC will be subject to the foregoing rules for that taxable year and all subsequent taxable years with respect to that U.S. holder’s holding of Ferrari common shares, even if Ferrari ceases to be a PFIC, subject to certain exceptions for U.S. holders that made a mark-to-market or QEF election. U.S. holders are strongly urged to consult their tax advisors regarding the PFIC rules, and the potential tax consequences to them if Ferrari were determined to be a PFIC.
Material Netherlands Tax Consequences
This section describes solely the principal Dutch tax consequences of the acquisition, ownership and disposal of Ferrari common shares and, if applicable, Ferrari special voting shares by Non-Resident holders of such shares (as defined below). It does not purport to describe every aspect of Dutch taxation that may be relevant to a particular holder of Ferrari common shares and, if applicable, Ferrari special voting shares. Tax matters are complex, and the tax consequences to a particular holder of Ferrari common shares and, if applicable, Ferrari special voting shares will depend in part on such holder’s circumstances. Shareholders and any potential investor should consult their own tax advisors regarding the Dutch tax consequences of acquiring, owning and disposing of Ferrari common shares and, if applicable, Ferrari special voting shares in their particular circumstances.
Where in this section English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch tax law. Where in this section the terms “the Netherlands” and “Dutch” are used, these refer solely to the European part of the Kingdom of the Netherlands.
This section also assumes that the board shall control the conduct of the affairs of Ferrari and shall procure that Ferrari is organized such that Ferrari should be treated as solely resident of Italy for the application of the tax treaty as concluded between Italy and The Netherlands. A change in facts and circumstances based upon which Ferrari is no longer considered to be solely resident of Italy for the application of the mentioned treaty may invalidate the contents of this section, which will not be updated to reflect any such change.
This section is based on the tax law of the Netherlands (unpublished case law not included) as it stands at the date of this Form. The law upon which this description is based is subject to change, perhaps with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect such change.
Where in this Dutch taxation section reference is made to “a holder of Ferrari common shares and, if applicable, Ferrari special voting shares”, that concept includes, without limitation:
1.
an owner of one or more Ferrari common shares and/or Ferrari special voting shares who in addition to the title to such Ferrari common shares and/or Ferrari special voting shares, has an economic interest in such Ferrari common shares and/or Ferrari special voting shares;
2.
a person who or an entity that holds the entire economic interest in one or more Ferrari common shares and/or Ferrari special voting shares;
3.
a person who or an entity that holds an interest in an entity, such as a partnership or a mutual fund, that is transparent for Dutch tax purposes, the assets of which comprise one or more Ferrari common shares and/or Ferrari special voting shares, within the meaning of 1. or 2. above; or

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4.
a person who is deemed to hold an interest in Ferrari common shares and/or Ferrari special voting shares, as referred to under 1. to 3., pursuant to the attribution rules of article 2.14a, of the Dutch Income Tax Act 2001 ( Wet inkomstenbelasting 2001 ), with respect to property that has been segregated, for instance in a trust or a foundation.
Scope of the summary.
The summary of Dutch taxes set out in this section “Material Dutch tax consequences” only applies to a holder of Ferrari common shares and, if applicable Ferrari special voting shares who is a Non-Resident holder of such shares. For the purpose of this summary a holder of Ferrari common shares and, if applicable Ferrari special voting shares is a Non-Resident holder of such shares if such holder is neither a resident nor deemed to be resident in The Netherlands for purposes of Dutch income tax or corporation tax as the case may be.
Please note that this summary does not describe the tax considerations for holders of Ferrari common shares and, if applicable Ferrari special voting shares who:
(i)
are individuals and derive benefits from Ferrari common shares and, if applicable Ferrari special voting shares that are a remuneration or deemed to be a remuneration in connection with past, present or future employment performed in The Netherlands or management activities and functions or membership of a management board ( bestuurder ) or a supervisory board ( commissaris ) of a Netherlands resident entity by such holder or certain individuals related to such holder (as defined in The Dutch Income Tax Act 2001); or
(ii)
is for Dutch tax purposes taxable as a corporate entity and resident of Aruba, Curacao or Sint Maarten.
Taxes on income and capital gains
A Non-resident holder (as defined above) of Ferrari common shares and, if applicable, Ferrari special voting shares will not be subject to any Dutch taxes on income or capital gains in respect of any benefits derived or deemed to be derived by such holder from such holder’s Ferrari common shares and, if applicable, Ferrari special voting shares, including any capital gain realized on the disposal thereof, unless:
1.
such holder derives profits from an enterprise directly, or pursuant to a co-entitlement to the net value of such enterprise, other than as a holder of securities, which enterprise either is managed in the Netherlands or carried on, in whole or in part, through a permanent establishment or a permanent representative which is taxable in the Netherlands, and such holder’s Ferrari common shares and, if applicable, Ferrari special voting shares are attributable to such enterprise; or
2.
such holder is an individual and such holder derives benefits from Ferrari common shares and, if applicable, Ferrari special voting shares that are taxable as benefits from miscellaneous activities ( resultaat uit overige werkzaamheden ) in the Netherlands. Such holder may, inter alia, derive, or be deemed to derive, benefits from Ferrari common shares and, if applicable, Ferrari special voting shares that are taxable as benefits from miscellaneous activities if such holder’s investment activities go beyond the activities of an active portfolio investor, for instance in the case of use of insider knowledge or comparable forms of special knowledge.
Benefits derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child, irrespective of the country of residence of the child.
Dividend withholding tax
Ferrari is generally required to withhold Dutch dividend withholding tax at a rate of 15 percent from dividends distributed by it. As an exception to this rule, Ferrari may not be required to withhold Dutch dividend withholding tax from Non-Resident holders of shares (as defined above) if it is considered to be a tax resident of both the Netherlands and Italy, in accordance with the domestic tax residency provisions applied by each of these jurisdictions, while the double tax treaty between the Netherlands and Italy attributes the tax residency exclusively to Italy.
Gift and inheritance taxes
If a holder of Ferrari common shares and, if applicable, Ferrari special voting shares disposes of Ferrari common shares and, if applicable, Ferrari special voting shares by way of gift, in form or in substance, or if a holder of Ferrari common shares

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and, if applicable, Ferrari special voting shares who is an individual dies, no Dutch gift tax or Dutch inheritance tax, as applicable, will be due, unless:
i.    the donor is, or the deceased was, resident or deemed to be resident in the Netherlands for purposes of Dutch gift tax or Dutch inheritance tax, as applicable; or
ii.    the donor made a gift of Ferrari common shares and, if applicable, Ferrari special voting shares, then became a resident or deemed resident of the Netherlands, and died as a resident or deemed resident of the Netherlands within 180 days of the date of the gift.
For purposes of the above, a gift of Ferrari common shares and, if applicable, Ferrari special voting shares made under a condition precedent is deemed to be made at the time the condition precedent is satisfied.
Value Added Tax
No Dutch value added tax will arise in respect of any payment in consideration for the issue of Ferrari common shares and, if applicable, Ferrari special voting shares.
Registration taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, is payable in the Netherlands by a holder in respect of or in connection with (i) the subscription, issue, placement or allotment of Ferrari common shares and, if applicable, Ferrari special voting shares, (ii) the enforcement by way of legal proceedings (including the enforcement of any foreign judgment in the courts of the Netherlands) of the documents relating to the issue of Ferrari common shares and, if applicable, Ferrari special voting shares or the performance by Ferrari of Ferrari’s obligations under such documents, or (iii) the transfer of Ferrari common shares and, if applicable, Ferrari special voting shares.
Material Italian Income Tax Consequences
This section describes solely the material Italian tax consequences of acquiring, holding, and disposing of Ferrari common shares and, if applicable, Ferrari special voting shares. It does not consider every aspect of Italian taxation that may be relevant to a particular holder of Ferrari common shares and, if applicable, Ferrari special voting shares in special circumstances or who is subject to special treatment under applicable law, and it is not intended to be applicable in all respects to all classes of investors.
Shareholders and any potential prospective investors should consult their own tax advisors regarding the Italian tax consequences of acquiring, holding, and disposing of Ferrari common shares and, if applicable, Ferrari special voting shares in their particular circumstances and should investigate the nature and the origin of the amounts received as distributions in connection with the Ferrari common shares (dividends or reserves).
Where in this section English terms and expressions are used to refer to Italian concepts, the meaning to be given to these terms and expressions shall be the meaning to be given to the equivalent Italian concepts under Italian tax law. This summary assumes that Ferrari common shares will be listed on a regulated market. This summary also assumes that Ferrari is organized, and that the business will be conducted, in the manner outlined in this report. A change to the organizational structure or to the manner in which Ferrari conducts its business may invalidate the contents of this section, which will not be updated to reflect any such change.
This summary is based on the tax laws of the Republic of Italy and case law / practice (unpublished case law / practice is not included) as it stands at the date of this report. The law upon which this description is based is subject to change, potentially with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect this change.
Definitions
In this section, the following terms have the meaning defined below:
•
“CITA”: Presidential Decree No. 917 of December 22, 1986 (the Consolidated Income Tax Act);
•
“EEA State”: a State that is party to the European Economic Area Agreement;

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•
“Finance Act 2017”: Law No. 232 of December 11, 2016;
•
“Finance Act 2018”: Law No. 205 of December 27, 2017;
•
“Finance Act 2019”: Law No. 145 of December 30, 2018;
•
“Finance Act 2020”: Law No. 160 of December 27, 2019;
•
“IRES”: Italian corporate income tax;
•
•
“Italian White List”: the list of countries and territories allowing a satisfactory exchange of information with Italy (i) currently included in the Italian Ministerial Decree of September 4, 1996, as subsequently amended and supplemented, or (ii) once effective in any other decree or regulation that will be issued in the future to provide the list of such countries and territories (and that will replace the Ministerial Decree of September 4, 1996), including any country or territory that will be deemed listed therein for the purpose of any interim rule;
•
“Non-Qualified Holdings”: holdings of common shares in Ferrari, including rights or securities through which Ferrari common shares may be acquired, other than Qualified Holdings;
•
“Qualified Holdings”: holdings of common shares in Ferrari, including rights or securities through which Ferrari common shares may be acquired, that represent, in case of shares listed on regulated markets, either (i) more than two percent of the overall voting rights exercisable at ordinary shareholders’ meetings or (ii) an interest in Ferrari’s issued and outstanding capital in excess of 5 percent; and
•
“Transfer of Qualified Holdings”: transfers of common shares in Ferrari, including rights or securities through which Ferrari common shares may be acquired, that exceed, over a period of 12 (twelve) months, the threshold for qualifying as Qualified Holdings. The twelve-month period starts from the date when the shares, securities and the rights owned represent a percentage of voting rights or interest in Ferrari’s capital that exceeds the aforesaid thresholds. In case of rights or securities through which Ferrari common shares may be acquired, the percentage of voting rights or interest in Ferrari’s capital potentially attributable to the holding of such rights and securities is taken into account.
Finance Act 2018 materially changed the tax regime applicable to dividends and capital gains from Qualified Holdings received or realized by Italian resident persons not engaged in business activity and by non-resident persons without a permanent establishment in Italy. This section only describes the tax regime applicable to (i) dividends paid out of profits that Ferrari has realized as of fiscal year 2018, and (ii) capital gains realized on common shares as of January 1, 2019.
Finance Act 2018 provides for an interim regime that applies to dividend distributions that are (i) paid out of profits realized by Ferrari until the fiscal year that was current on December 31, 2017 and (ii) declared before December 31, 2022 (dividends declared after this date are subject to the new tax regime enacted by Finance Act 2018 and described below in detail in this section). These dividend distributions would be subject to the old tax regime that applied before Finance Act 2018. In particular, Italian resident individuals holding a Qualified Holding not in connection with a business activity (i) would not be subject to a withholding tax on the distribution, provided that, in this case, the holders declare at the time of receipt that the dividends relate to Qualified Holdings, but (ii) would have to include in their taxable income:
–
40 percent of the amount of the dividends paid out of profits formed until the fiscal year that was current on December 31, 2007;
–
49.72 percent of the amount of the dividends paid out of profits formed after the fiscal year that was current on December 31, 2007 and until the fiscal year that was current on December 31, 2016;
–
58.14 percent of the amount of the dividends paid out of profits formed in the fiscal year that was current on December 31, 2017.
Article 1(4) of Ministerial Decree of May 26, 2017 sets forth a priority rule whereby dividends are first deemed to be paid out of profits earned by the distributing company until the fiscal year that was current on December 31, 2007, then out of profits earned until the fiscal year that was current on December 31, 2016 and finally out of profits of subsequent fiscal years.

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Taxation of Dividends
The tax regime summarized in this subsection “Taxation of Dividends” applies only to classes of holders of Ferrari common shares and, if applicable, Ferrari special voting shares that are described here below.
Dividends paid by Ferrari are subject to the tax regime generally applicable to dividends paid by companies that are resident for tax purposes in the Republic of Italy.
As mentioned, this section only describes the tax regime applicable to dividends paid out of profits that Ferrari has realized as of fiscal year 2018.
The tax regime may vary as follows.
(A)    I TALIAN R ESIDENT P ERSONS
(i)
Individuals not engaged in business activity
Under Decree No. 600 of September 29, 1973 (“Decree 600”), dividends paid from January 1, 2018 to Italian resident individuals who hold the Ferrari common shares neither in connection with a business activity nor in the context of the discretionary investment portfolio regime (“ risparmio gestito” ) as defined in subparagraph (A)(ii) below are subject to 26 percent tax withheld at source in Italy. In this case, the holders are not required to report the dividends in their income tax returns.
Subject to certain conditions (including minimum holding period requirement) and limitations, dividends paid by Ferrari may be exempt from any income taxation (including from the 26 percent tax withheld at source) if the common shares do not represent a Qualified Holding and are included in a long-term savings account ( piano di risparmio a lungo termine ) that meets all the requirements set forth under Italian tax law.
(ii)
Individuals not engaged in business activity and holding the Ferrari common shares under the “risparmio gestito” regime
Dividends paid from January 1, 2018 to Italian resident individuals who do not hold the Ferrari common shares in connection with a business activity are not subject to any tax withheld at source in Italy if (a) the holder has entrusted the management of the shares to an authorized intermediary under a discretionary asset management contract, and (c) the holder has elected for the discretionary investment portfolio regime (“ risparmio gestito ”) under Article 7 of Legislative Decree No. 461 of November 21, 1997 (“Decree 461”). In this case, the dividends are included in the annual accrued management result ( risultato maturato annuo di gestione ), which is subjected to a 26 percent substitute tax. Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, according to a certain interpretation, until January 1, 2023 the election for the discretionary investment portfolio regime would only be available if the common shares held represent a Non-Qualified Holding.
(iii)
Sole Proprietors
Dividends paid to Italian resident individuals who hold the Ferrari common shares in connection with a business activity (“Sole Proprietors”) are not subject to any tax withheld at source in Italy, provided that, in this case, the holders declare at the time of receipt that the profits collected are from holdings connected with their business activity. In this case, dividends must be reported in the income tax return, but only 58.14 percent of such dividends are included in the holder’s overall business income taxable in Italy.
(iv)
Partnerships (Italian “società in nome collettivo”, “società in accomandita semplice”, “società semplici ” and similar Italian partnerships as referred to in Article 5 CITA), as well as companies and other business entities referred to in Article 73(1)(a)-(b) CITA
No Italian tax is withheld at source on dividends paid to Italian partnerships (such as Italian “ società semplici ”, “ società in nome collettivo ”, “ società in accomandita semplice” and similar partnerships as referred to in Article 5 CITA). Only 58.14 percent of such dividends are included in the overall business income to be reported by the partnership if the partnership is a business partnership. If it is instead a non-business partnership (“ società semplice ”), based on Article 32- quater of Law Decree No. 124 of October 26, 2019, converted into Law with amendments by Law No. 157 of December 19, 2019, dividends are deemed to be received on a tax transparency basis by the Italian resident partners and are subject to tax under the tax regime applicable to the relevant partner, (i.e., as if they were directly paid to each partner).

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No Italian tax is withheld at source on dividends paid to Italian resident companies and other Italian resident business entities as referred to in Article 73(1)(a)-(b) CITA, including, among others, corporations (“ società per azioni ”), partnerships limited by shares (“ società in accomandita per azioni ”), limited liability companies (“ società a responsabilità limitata ”) and public and private entities whose sole or primary purpose is to carry out business activities. Only 5 percent of the dividends are included in the overall business income subject to IRES, unless the common shares in Ferrari are financial assets held for trading by holders that apply IAS / IFRS international accounting standards under Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. In this latter case, the full amount of the dividends is included in the holder’s overall business income subject to IRES.
For some types of companies and under certain conditions, dividends are also partially included in the net value of production, which is subject to the regional tax on productive activities (“IRAP”).
(v)
Non-business entities referred to in Article 73(1)(c) CITA
No Italian tax is withheld at source on dividends paid to Italian resident non-business entities referred to in Article 73(1)(c) CITA (including Italian resident trusts that do not carry out a business activity), except for Italian collective investment vehicles (“OICR”). The dividends are fully included in the holder’s overall income subject to IRES (only 77.74 percent of the dividend would instead be included in the holder’s overall income if it were paid out of profits formed until the fiscal year that was current on December 31, 2016). For social security entities pursuant to Legislative Decree No. 509 of June 30, 1994 and Legislative Decree No. 103 of February 10, 1996, subject to certain conditions (including minimum holding period requirement) and limitations, dividends and other income from the common shares that do not represent a Qualified Holding may be excluded from the taxable base if the social security entity earmarks the common shares as eligible investment under Article 1(89) of Finance Act 2017 (as subsequently amended) to the extent, however, that investment in the common shares (and other qualifying shares or units in undertakings for collective investment investing mainly in qualifying shares) represent no more than 10 percent of the gross asset value of the social security entity of the previous year.
(vi)
Persons exempt from IRES and persons outside the scope of IRES
Dividends paid to Italian resident persons that are exempt from IRES are generally subject to 26 percent tax withheld at source.
No Italian tax is instead withheld at source on dividends paid to persons that are outside the scope of IRES (“ esclusi ”) under Article 74(1) CITA.
(vii)
Pension funds and OICR (other than Real Estate AIF)
No Italian tax is withheld at source on dividends paid to (a) Italian pension funds governed by Legislative Decree No. 252 of December 5, 2005 (“Decree 252”) and (b) Italian OICR, other than real estate investment funds and Italian real estate SICAFs (real estate alternative investment funds, “Real Estate AIF”).
Dividends received by Italian pension funds are taken into account to compute the pension fund’s net annual accrued yield, which is subject to a 20 percent flat tax ( imposta sostitutiva ). Subject to certain conditions (including minimum holding period requirement) and limitations, dividends and other income from the common shares may be excluded from the taxable base of the 20 percent flat tax if the pension fund earmarks the common shares as eligible investment under Article 1(89)-(92) of Finance Act 2017 (as subsequently amended) to the extent, however, that investment in the common shares (and other qualifying shares or units in undertakings for collective investment investing mainly in qualifying shares) represent no more than 10 percent of the gross asset value of the pension fund of the previous year.
Dividends received by OICR that are set up in, and organized under the laws of, Italy and that are subject to regulatory supervision (other than Real Estate AIF) are not subject to taxation at the level of the OICR.
(viii)
Real Estate AIF
No Italian tax is withheld at source on dividends paid to Italian Real Estate AIF. Moreover, dividends are not subject to either IRES or IRAP at the level of the Real Estate AIF. However, income realized by Italian Real Estate AIF is attributed pro rata to Italian resident unitholders / shareholders, irrespective of any actual distribution, on a tax transparency basis if the Italian resident unitholders / shareholders are not institutional investors and hold units / shares in the Real Estate AIF representing more than 5 percent of the Real Estate AIF’s net asset value.

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(B)
N ON -I TALIAN R ESIDENT P ERSONS
(i)
Non-resident persons holding the common shares in Ferrari through a permanent establishment in Italy
No Italian tax is withheld at source on dividends paid to non-resident persons that hold the common shares in Ferrari through a permanent establishment in Italy to which the common shares in Ferrari are effectively connected. Only 5 percent of the dividends are included in the overall income subject to IRES, unless the common shares in Ferrari are financial assets held for trading by holders that apply IAS / IFRS international accounting standards under Regulation No. 1606/2002 of the European Parliament and the Council of July 19, 2002. In this latter case, the full amount of the dividends is included in the overall business income subject to IRES. If the common shares are held by a non-resident Sole Proprietor through a permanent establishment in Italy to which the common shares are effectively connected, only 58.14 percent of the dividends is included in the overall income subject to personal income tax.
For some types of businesses and under certain conditions, dividends are also partially included in the net value of production, which is subject to IRAP.
If dividends are paid with respect to common shares in Ferrari that are not connected with a permanent establishment in Italy of a non-resident person, please see subparagraph (B)(ii) below.
(ii)
Non-resident persons that do not hold the common shares in Ferrari through a permanent establishment in Italy
A 26 percent tax withheld at source generally applies on dividends paid to non-resident persons that do not have a permanent establishment in Italy to which the common shares in Ferrari are effectively connected.
Subject to a specific application that must be submitted to the Italian tax authorities under the terms and conditions provided by law, non-resident holders are entitled to relief (in the form of a refund), which cannot be greater than 11/26 (eleven twenty-sixths) of the tax levied in Italy, if they can demonstrate that they have paid final tax abroad on the same profits. Holders who may be eligible for the relief should consult with their own independent tax advisors to determine whether they are eligible for, and how to obtain, the tax refund.
As an alternative to the relief described above, persons resident in countries that have a double tax treaty in force with Italy may request that the withholding tax on dividends be levied at the (reduced) rate provided under the applicable tax treaty, provided that the non-resident person promptly submits proper documentation.

The domestic withholding tax rate on dividends is 1.2 percent (and not 26 percent) if the recipients and beneficial owners of the dividends on Ferrari common shares are companies or entities that are (a) resident for tax purposes in an EU Member State or in an EEA State that is included in the Italian White List and (b) subject to corporate income tax in such State. These companies and entities are not entitled to the relief described above.
The domestic withholding tax rate on dividends is 11 percent (and not 26 percent) if the recipients and beneficial owners of the dividends on Ferrari common shares are pension funds that are set up in an EU Member States or an EEA State included in the Italian White List. These pension funds are not entitled to the relief described above. Moreover, Article 1(95) of Finance Act 2017 (as amended by Finance Act 2019) provides for an exemption from withholding taxation on dividends if a pension fund set up in an EU Member State or an EEA State holds shares in an Italian resident corporation (such as Ferrari) for at least 5 years and only to the extent of dividends from investments in qualifying shares (or units in undertakings for collective investment investing mainly in qualifying shares) that represent no more than 10 percent of the gross asset value of the pension fund of the previous year. To benefit from this exemption, the EU (or “white listed” EEA) pension fund that is the beneficial owner of the dividends must submit an affidavit to the withholding agent whereby it declares that it meets the conditions for the exemption and that it undertakes to hold the shares for the required holding period.
Under Article 27- bis of Decree 600, which implemented in Italy the Directive 435/90/EEC of July 23, 1990, then recast in EU Directive 2011/96 of November 30, 2011 (the “Parent Subsidiary Directive”), a company is entitled to a full refund of the withholding tax levied on the dividends if it (a) has one of the legal forms provided for in the appendix to the Parent Subsidiary Directive, (b) is resident for tax purposes in an EU Member State without being considered to be resident outside the EU according to a double tax treaty signed with a non-EU country, (c) is subject in the country of residence to one of the taxes indicated in the appendix to the Parent Subsidiary Directive with no possibility of benefiting from optional or exemption regimes that have no territorial or time limitations, and (d) directly holds common shares in Ferrari that represent an interest in the issued and outstanding capital of Ferrari of no less than 10 percent for an uninterrupted period of at least one year. If these conditions are met, and as an alternative to submitting a refund request after the dividend distribution, the non-resident company may request that no tax be levied at the time the dividends are paid, provided that (x) the 1-year holding period under condition (d) above has already run

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and (y) the non-resident company promptly submits proper documentation. The withholding exemption under Article 27- bis of Decree 600 may be denied by the Italian tax authorities in abusive situations pursuant to the Italian statutory general anti-abuse rule (Article 10-bis of Law No. 212 of July 27, 2000).
Under the Agreement between the European Community and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments, the withholding tax refund / exemption regime described above also applies to dividends paid to a company that (a) is resident for tax purposes in Switzerland without being considered to be resident outside Switzerland according to a double tax treaty signed with a non-EU country, (b) is a limited company, (c) is subject to Swiss corporate tax without being exempted or benefiting from preferential tax regimes, and (d) directly holds common shares in Ferrari that represent an interest in Ferrari’s issued and outstanding capital of no less than 25 percent for an uninterrupted period of at least two years.
Dividends distributed to international entities or bodies that benefit from exemption from taxation in Italy pursuant to international rules or treaties entered into force in Italy will not be subject to withholding tax.
(iii)
U.S. holders (without permanent establishment in Italy) of Ferrari common shares and, if applicable, Ferrari special voting shares
If Ferrari is considered to be a tax resident of both Italy and the Netherlands, in accordance with the domestic tax residency provisions applied by each of these jurisdictions, while the double tax treaty between Italy and the Netherlands attributes the tax residency exclusively to Italy, Ferrari will be required to apply Italian dividend withholding tax on dividends distributed to U.S. holders of Ferrari common shares and, if applicable, Ferrari special voting shares. However, certain U.S. holders of Ferrari common shares and, if applicable, Ferrari special voting shares may qualify for full or partial relief from the Italian dividend withholding tax under the Convention between the Government of the United States of America and the Government of the Italian Republic for the avoidance of double taxation with respect to taxes on income and the prevention of fraud or fiscal evasion signed in Washington, D.C. on August 25, 1999 (the “Italy-U.S. Treaty”). On the basis of Article 10 of the Italy-U.S. Treaty, qualifying U.S. individuals are entitled to a reduced Italian dividend withholding tax rate (i.e., 15 percent) and qualifying U.S. companies are entitled, under certain conditions, to a reduced Italian dividend withholding tax rate (either 5 percent or 15 percent depending on the circumstances). On the basis of Article 10(8) of the Italy-U.S. Treaty, qualified U.S. governmental entities are entitled, under certain conditions, to a full exemption from Italian dividend withholding tax.
Taxation of distributions of Equity Reserves
The tax regime summarized in this subsection “Taxation of distributions of Equity Reserves” applies only to classes of holders of Ferrari common shares and, if applicable, Ferrari special voting shares that are described here below.
The information provided in this subsection summarizes the Italian tax regime applicable to the distributions by Ferrari - other than in case of reduction of excess capital, withdrawal, exclusion, redemption or liquidation - of equity reserves as referred to under Article 47(5) CITA, such as, for instance, reserves or other funds formed with share premiums, equalizing interests ( interessi di conguaglio ) paid in by the subscribers, equity (other than share capital) contributions ( versamenti a fondo perduto ) or share capital account payments ( versamenti in conto capitale ) made by shareholders and tax-exempt revaluation reserves (the “Equity Reserves”).
(A)
I TALIAN R ESIDENT P ERSONS
(i)
Individuals not engaged in business activity
Regardless of what holders have resolved upon in the shareholders’ meeting, the amounts received as distribution out of Equity Reserves of Ferrari by Italian resident individuals who do not hold the Ferrari common shares in connection with a business activity are deemed to be, and treated as, profits for the recipients to the extent that Ferrari has current year profits and retained profits (except for any portion thereof earmarked to a tax-deferred reserve or non-distributable reserves). Amounts treated as profits are subject to the same tax regime described above for dividends. Amounts received as distributions out of Equity Reserves, net of any amount already treated as profits as per the above, reduce the holder’s tax basis in Ferrari common shares correspondingly. Distributions out of Equity Reserves that are in excess of the holders’ tax basis in the Ferrari common shares are treated as dividends for tax purposes. Special rules may apply if the individual holders have elected with regard to the common shares in Ferrari into the discretionary investment portfolio regime ( regime del risparmio gestito ) described in subparagraph (A)(i) of the subsection “Taxation of Capital Gains” below.

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(ii)
Sole Proprietors, business partnerships (Italian “società in nome collettivo,” “società in accomandita semplice” and similar Italian partnerships as referred to in Article 5 CITA), as well as companies and other business entities referred to in Article 73(1)(a)-(b) CITA
Regardless of what holders have resolved upon in the shareholders’ meeting, the amounts received as distribution out of Equity Reserves of Ferrari by Italian Sole Proprietors, Italian business partnerships (Italian “ società in nome collettivo ,” “ società in accomandita semplice ” and similar Italian partnerships as referred to in Article 5 CITA), and Italian resident companies and other business entities referred to in Article 73(1)(a)-(b) CITA are deemed to be, and are treated as, profits for the recipients to the extent that Ferrari has current year profits and retained profits (except for any portion thereof earmarked to a tax-deferred reserve or non-distributable reserves). Amounts treated as profits should be subject to the same tax regime described above for dividends. Amounts received as distributions out of Equity Reserves, net of any amount already treated as profits as per the above, reduce the holder’s tax basis in the Ferrari common shares correspondingly. Distributions out of Equity Reserves that are in excess of the holders’ tax basis in the common shares in Ferrari are treated as capital gains for tax purposes and should be subject to the same regime described in the subsection “Taxation of Capital Gains” below.
(iii)
Non-business entities referred to in Article 73(1)(c) CITA and non-business partnerships referred to in Article 5 CITA
Amounts received by Italian resident non-business entities referred to in Article 73(1)(c) CITA as distributions out of Equity Reserves, net of any amount already treated as profits as per the rules described in subparagraph (A)(i) above, reduce the holder’s tax basis in the Ferrari common shares correspondingly. Distributions out of Equity Reserves that are in excess of the holders’ tax basis in the common shares in Ferrari not held in connection with a business activity are treated as dividends for tax purposes. For a short description of a favorable regime available to certain social security entities, see subparagraph (A)(v) of the subsection “Taxation of Dividends” above.
In case of amounts received by Italian non-business partnerships referred to in Article 5 CITA, the tax regime depends on the specific circumstances of the case. Shareholders and any potential prospective investors that are Italian non-business partnerships should consult their own tax advisors in this respect.
(iv)
Persons exempt from IRES
Amounts received by Italian resident persons exempt from IRES as distributions out of Equity Reserves, net of any amount already treated as profits as per the rules described in subparagraph (A)(i) above, reduce the holder’s tax basis in the Ferrari common shares correspondingly. Distributions out of Equity Reserves that are in excess of the holders’ tax basis in the common shares in Ferrari not held in connection with a business activity are treated as dividends for tax purposes.
(v)
Pension funds and OICR (other than Real Estate AIF)
Amounts received by Italian pension funds governed by Article 17 of Decree 252 as distributions out of Equity Reserves should be taken into account to compute the pension fund’s net annual accrued yield, which is subject to a 20 percent flat tax ( imposta sostitutiva ). The value of the common shares in Ferrari at the end of the same tax year should also be included in the net annual accrued yield. For a short description of a favorable regime available to pension funds, see subparagraph (A)(vii) of the subsection “Taxation of Dividends” above.
Conversely, any amounts received by OICR that are set up in, and organized under the laws of, Italy and that are subject to regulatory supervision (other than Real Estate AIF) as distributions out of Equity Reserves are not subject to taxation at the level of the OICR.
(vi)
Real Estate AIF
Amounts received by Italian Real Estate AIF as distributions out of Equity Reserves are not subject to IRES or IRAP at the level of the Real Estate AIF. However, income realized by Italian Real Estate AIF is attributed pro rata to the Italian resident unitholders / shareholders, irrespective of any actual distribution, on a tax transparency basis if the Italian resident unitholders / shareholders are not institutional investors and hold units / shares in the Real Estate AIF representing more than 5 percent of the Real Estate AIF’s net asset value.
(B)
N ON -I TALIAN R ESIDENT P ERSONS
(i)
Non-resident persons that do not hold the common shares in Ferrari through a permanent establishment in Italy

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For non-Italian resident persons (whether individuals or corporations) without a permanent establishment in Italy to which the common shares in Ferrari are effectively connected, the amounts received as distributions out of Equity Reserves are subject to the same tax regime as applicable to Italian resident individuals not engaged in business activity described in paragraph A(i) of this subsection “Taxation of distributions of Equity Reserves”. Therefore, the amounts received as distributions out of Equity Reserves, net of any amount that has already been treated as profits as per the rules described in subparagraph (A)(i) above, reduce the holder’s tax basis in the Ferrari common shares correspondingly. Distributions out of Equity Reserves that are in excess of the holders’ tax basis in the common shares in Ferrari are treated as dividends for tax purposes.
(ii)
Non-resident persons holding the common shares in Ferrari through a permanent establishment in Italy
For non-Italian resident persons that hold the common shares in Ferrari through a permanent establishment in Italy to which the Ferrari common shares are effectively connected, the amounts received as distributions out of Equity Reserves are subject to the same tax regime as applicable to Italian resident companies and other business entities referred to in Article 73(1)(a)-(b) CITA as described in subparagraph (A)(ii) above. If the Equity Reserves distribution relates to common shares in Ferrari that are not connected to a permanent establishment in Italy of the non-resident recipient, reference must be made to subparagraph (B)(i) above.
Taxation of Capital Gains
The tax regime summarized in this subsection “Taxation of Capital Gains” applies only to classes of holders of Ferrari common shares and, if applicable, Ferrari special voting shares that are described here below.
(A)
I TALIAN R ESIDENT P ERSONS
(i)
Italian resident individuals not engaged in business activity
Capital gains realized by Italian resident individuals upon transfer for consideration of the common shares (as well as of securities or rights whereby common shares may be acquired), other than capital gains realized in connection with a business activity, are subject to a 26 percent substitute tax (“CGT”). The taxpayer may opt for any of the following three tax regimes:
a.
Tax return regime ( regime della dichiarazione ). Under this regime, capital gains and capital losses realized during the tax year must be reported in the income tax return. CGT is computed on capital gains net of capital losses of the same nature and must be paid by the term for paying the balance of the annual income tax. Capital losses in excess of capital gains may be carried forward and offset against capital gains realized in any of the four following tax years. Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, capital losses realized on transfers of Non-Qualified Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. This regime is the default regime if the taxpayer does not elect into any of the two alternative regimes described in (b) and (c) below.
b.
Non-discretionary investment portfolio regime ( risparmio amministrato ) (optional). Under this regime, CGT is applied separately on capital gains realized on each transfer of common shares in Ferrari. This regime is allowed subject to (x) the Ferrari common shares being managed or in custody with Italian banks, broker-dealers ( società di intermediazione mobiliare ) or certain authorized financial intermediaries; and (y) an express election for the non-discretionary investment portfolio regime being made in writing in due time by the relevant holder. Under this regime, the financial intermediary is responsible for accounting for and paying (on behalf of the taxpayer) CGT in respect of capital gains realized on each transfer of the common shares in Ferrari (as well as in respect of capital gains realized at revocation of the intermediary’s mandate), net of any relevant capital losses. Capital losses may be carried forward and offset against capital gains realized within the same relationship of deposit in the same tax year or in the following tax years up to the fourth. Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, capital losses realized on transfers of Non-Qualified Holdings before 2019 should be allowed to offset capital gains realized on Transfers of Qualified Holdings as of 2019. Under this regime, the holder is not required to report capital gains in the annual income tax return.
c.
Discretionary investment portfolio regime ( risparmio gestito ) (optional). This regime is allowed for holders who have entrusted the management of their financial assets, including the Ferrari common shares, to an authorized intermediary and have elected in writing into this regime. Under this regime, capital gains accrued on the Ferrari common shares are included in the computation of the annual increase in value of the managed assets accrued (even if not realized) at year end, which is subject to CGT. The managing authorized intermediary applies the tax on behalf of the taxpayer. Any decrease in value of the managed assets accrued at year end may be carried forward

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and offset against any increase in value of the managed assets accrued in any of the four following tax years. Under this regime, the holder is not required to report capital gains in the annual income tax return. Even if there is not yet official published guidance of the Italian tax authorities after the reform enacted by Finance Act 2018, according to a certain interpretation, until January 1, 2023 the election for the discretionary investment portfolio regime would only be available if the Common Shares held represent a Non-Qualified Holding.
Subject to certain conditions (including minimum holding period requirement) and limitations, capital gains on the common shares may be exempt from any income taxation (including from the 26 percent CGT) if the common shares do not represent a Qualified Holding and are included in a long-term savings account ( piano di risparmio a lungo termine ) that meets all the requirements set forth under Italian tax law.
(ii)
Sole Proprietors and business partnerships (Italian “società in nome collettivo,” “società in accomandita semplice” and similar Italian partnerships as referred to in Article 5 CITA)
Capital gains realized from January 1, 2018 by Italian Sole Proprietors and Italian business partnerships (Italian “ società in nome collettivo ,” “ società in accomandita semplice ” and similar Italian partnerships as referred to in Article 5 CITA) upon transfer for consideration of the common shares in Ferrari must be fully included in the overall business income and reported in the annual income tax return. Capital losses (or other negative items of income) derived by this class of holders upon transfer for consideration of the common shares in Ferrari would be fully deductible from the holder’s income.
However, if the conditions under a. and b. of subparagraph (A)(iii) below are met, only 49.72 percent (58.14 percent in case of Sole Proprietors) of the capital gain must be included in the overall business income. Capital losses realized on common shares in Ferrari that meet the conditions under a. and b. of subparagraph (A)(iii) below are only partially deductible (similarly to what is provided for the taxation of capital gains).
For the purpose of determining capital gains and capital losses, the holder’s tax basis in the Ferrari common shares is reduced by any write-down that the holder has deducted in previous tax years.
(iii)
Companies and other business entities referred to in Article 73(1)(a)-(b) CITA
Capital gains realized by Italian resident companies and other business entities as referred to in Article 73(1)(a)-(b) CITA (including partnerships limited by shares and public and private entities whose sole or primary purpose is carrying out business activity) upon transfer for consideration of the common shares in Ferrari must be fully included in the overall taxable business income subject to IRES in the tax year in which the capital gains are realized or, upon election, may be spread in equal installments over a maximum of five tax years (including the tax year when the capital gain is realized). The election for the installment computation is only available if the common shares in Ferrari have been held for no less than three years and booked as non-current financial assets ( immobilizzazioni finanziarie ) in the last three financial statements.
However, under Article 87 CITA (participation exemption), capital gains realized upon transfer of common shares in Ferrari are 95 percent exempt if both the following requirements are met:
a.
The common shares in Ferrari have been uninterruptedly held as of the first day of the twelfth month prior to the transfer, treating the Ferrari common shares acquired on the most recent date as being transferred first (on a “last in first out” basis); and
b.
The common shares in Ferrari have been booked as non-current financial assets in the first financial statements closed during the holding period. In case of holders that draft their financial statements according to IAS / IFRS international accounting standards, the common shares in Ferrari are deemed as non-current financial assets if they are not accounted as financial assets held for trading.

The law lays down certain additional conditions for the exemption to be available. Based on the assumption that Ferrari is a holding company, that its shares are listed on a regulated market, and that pursuant to Article 87(5) CITA its assets are predominantly composed of shareholdings in companies which satisfy the additional conditions set forth by Article 87 CITA in order to enjoy the participation exemption regime (i.e., the companies are not resident in a State with a preferential tax system pursuant to Article 47- bis CITA and carry on a business activity), these additional conditions should be met.
The transfer of shares booked as fixed financial assets and shares booked as inventory must be considered separately with reference to each class. If the requirements for the participation exemption are met, any capital loss realized on the common shares in Ferrari cannot be deducted.

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For the purpose of determining capital gains and capital losses, the holder’s tax basis in the Ferrari common shares is reduced by any write-down that the holder has deducted in previous tax years.
Capital losses (as well as negative differences between revenues and costs) relating to shares that do not meet the participation exemption requirements are not relevant (and cannot be deducted) to the extent of the non-taxable amount of dividends (or advance dividend) received by the holder in the 36 (thirty-six) months prior to the transfer (dividend washing rule). This anti-avoidance rule applies to shares acquired in the 36-month period preceding the realization of the capital loss (or the negative difference), provided that requirements under Article 87(1)(c)-(d) CITA (i.e., the company is not resident in a State with a preferential tax system pursuant to Article 47- bis CITA and carries on a business activity) are met. The anti-avoidance rule does not apply to holders that draft their financial statements according to IAS / IFRS international accounting standards under Regulation (EC) No. 1606/2002 of the European Parliament and the Council of July 19, 2002. When the amount of the aforesaid capital losses (and negative differences) deriving from a transaction (or a series of transactions) on shares traded on regulated markets is greater than €50,000.00, the taxpayer must, under certain circumstances report the data and the information regarding the transaction to the Italian tax authorities.
Moreover, in case of capital losses greater than €5,000,000.00 deriving from the transfer (or a series of transfers) of shares booked as non-current financial assets, the holder must report the data and the information to the Italian tax authorities. Holders that draft their financial statements according to IAS / IFRS international accounting standards are under no such obligation.
For some types of companies and under certain conditions, capital gains on common shares in Ferrari are also included in the net value of production that is subject to IRAP.
(iv)
Non-business entities referred to in Article 73(1)(c) CITA and non-business partnerships (società semplici) referred to in Article 5 CITA
Capital gains realized, outside the scope of a business activity, by Italian resident non-business entities referred to in Article 73(1)(c) CITA (other than OICR) and Italian non-business partnerships as referred to in Article 5 CITA are subject to tax under the same rules as provided for capital gains realized by Italian resident individuals who do not hold the Ferrari common shares in connection with a business activity. For a short description of a favorable regime available to certain social security entities, see subparagraph (A)(v) of the subsection “Taxation of Dividends” above.
(v)
Pension funds and OICR (other than Real Estate AIF)
Capital gains on common shares in Ferrari held by Italian pension funds governed by Decree 252 must be taken into account to compute the pension fund’s net annual accrued yield, which is subject to a 20 percent flat tax ( imposta sostitutiva ). For a short description of a favorable regime available to pension funds, see subparagraph (A)(vii) of the subsection “Taxation of Dividends” above.
Capital gains on common shares in Ferrari held by OICRs that are set up in, and organized under the laws of, Italy and that are subject to regulatory supervision (other than Real Estate AIF) are not subject to tax at the level of the OICR.

(vi)
Real Estate AIF
Capital gains on common shares in Ferrari held by Italian Real Estate AIF are not subject to IRES or IRAP at the level of the Real Estate AIF.
(B)
N ON -I TALIAN R ESIDENT P ERSONS
(i)
Non-resident persons holding the common shares in Ferrari through a permanent establishment in Italy
If non-Italian resident persons hold the common shares in Ferrari through a permanent establishment in Italy to which the common shares in Ferrari are effectively connected, capital gains realized upon disposal of the common shares in Ferrari must be included in the permanent establishment’s income taxable in Italy according to the tax regime as provided for the capital gains realized by Italian resident companies and other business entities as referred to in Article 73(1)(a)-(b) CITA, which is summarized under subparagraph (A)(iii) above. If the common shares in Ferrari are not connected to a permanent establishment in Italy of the non-resident person, reference must be made to subparagraph (B)(ii) below.
If the common shares are held by a non-resident Sole Proprietor through a permanent establishment in Italy to which the common shares are effectively connected, capital gains realized upon disposal of the common shares must be included in the

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permanent establishment’s income taxable in Italy according to the tax regime as provided for the capital gains realized by Italian Sole Proprietors, which is summarized under subparagraph (A)(ii) above.
(ii)
Non -resident persons that do not hold the common shares in Ferrari through a permanent establishment in Italy
NON-QUALIFIED HOLDINGS. Based on the fact that Ferrari common shares are listed on a regulated market, no tax applies in Italy on capital gains realized by non-Italian resident holders without a permanent establishment in Italy upon transfer for consideration of common shares in Ferrari that do not qualify as Transfers of Qualified Holdings, even if the Ferrari common shares are held in Italy and regardless of the provisions set forth in any applicable double tax treaty. In such case, in order to benefit from this exemption, non-Italian resident holders who hold the Ferrari common shares with an Italian authorized financial intermediary and either are subject to the nondiscretionary investment portfolio regime or have elected for the discretionary investment portfolio regime may be required to timely submit to the Italian authorized financial intermediary an affidavit whereby they state that they are not resident in Italy for tax purposes.
QUALIFIED HOLDINGS. Capital gains realized by non-Italian resident holders without a permanent establishment in Italy upon Transfers of Qualified Holdings are subject to tax under the rules as provided for capital gains realized by Italian resident individuals who do not hold the Ferrari common shares in connection with a business activity. However, the provisions of double tax treaties entered into by Italy may apply if more favorable.
Special voting shares
No statutory, judicial or administrative authority directly discusses how the receipt, ownership or disposal of special voting shares should be treated for Italian income tax purposes and as a result, the Italian tax consequences are uncertain. Accordingly, we urge Ferrari shareholders to consult their tax advisors as to the tax consequences of the receipt, ownership and disposal of special voting shares.
Receipt of special voting shares
A shareholder that receives special voting shares issued by Ferrari should in principle not recognize any taxable income upon the receipt of special voting shares. Under a possible interpretation, the issue of special voting shares can be treated as the issue of bonus shares free of charge to the shareholders out of existing available reserves of Ferrari. Such issue should not have any material effect on the allocation of the tax basis of a shareholder between its Ferrari common shares and its Ferrari special voting shares. Because the special voting shares are not transferable and their limited economic rights can be enjoyed only at the time of the liquidation of Ferrari, we believe and intend to take the position that the fair market value of each special voting share is minimal. However, because the determination of the fair market value of the special voting shares is not governed by any guidance that directly addresses such a situation and is unclear, the Italian tax authorities could assert that the value of the special voting shares as determined by us is incorrect.
Ownership of special voting shares
Shareholders of special voting shares should not have to recognize income in respect of any amount transferred to the special voting shares dividend reserve, but not paid out as dividends, in respect of the special voting shares.
Disposition of special voting shares
The tax treatment of a Ferrari shareholder that has its special voting shares redeemed for no consideration after removing its shares from the Loyalty Register is unclear. It is possible that a shareholder should recognize a loss to the extent of the shareholder’s tax basis (if any). The deductibility of such loss depends on individual circumstances and conditions generally required by Italian law. It is also possible that a Ferrari shareholder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead should increase its basis in its Ferrari common shares by an amount equal to the tax basis (if any) in its special voting shares.
Transfer tax
Contracts or other legal instruments relating to the transfer of securities (including the transfer of the Ferrari common shares) are subject to registration tax as follows: (i) notary deeds ( atti pubblici ) and private deeds with notarized signatures ( scritture private authenticate ) executed in Italy must mandatorily be registered with the Italian tax authorities and are subject to €200.00 registration tax; and (ii) private deeds ( scritture private ) are subject to €200.00 registration tax only if they are voluntary filed for registration with the Italian tax authorities or if the so-called “ caso d’uso ” or “ enunciazione ” occurs.

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Financial Transaction Tax
Article 1(491-500) of Law No. 228 of December 24, 2012 introduced a financial transaction tax (‘‘ FTT ”) applicable, among others, to the transfers of the ownership of (i) shares issued by Italian resident corporations, (ii) participating financial instruments (as defined under Article 2346(6) of the Italian Civil Code) issued by Italian resident corporations, and (iii) securities representing equity investments in Italian resident corporations such as American Depositary Receipts and Global Depositary Receipts, regardless of the place of residence of the issuer of such securities and of the place where the contract has been concluded.
The residence of the issuer for the purposes of FTT is the place where the issuer has its registered office (intended as its corporate seat).
Since the corporate seat of Ferrari is not in Italy, transfers of ownership of the shares in Ferrari will not be subject to FTT.
Transfer of the Ferrari Shares upon Death or by Gift
Subject to certain exceptions, Italian inheritance and gift tax is generally payable on transfers of assets and rights (including the common shares and the special voting shares in Ferrari) (i) by reason of death or gift by Italian resident persons (or other transfers for no consideration and the creation of liens on such assets for a specific purpose), even if the transferred assets are held outside Italy, and (ii) by reason of death or gift by non-Italian resident persons, but limited to transferred assets held in Italy. Shares in corporations that are resident in Italy for tax purposes (because they have their corporate address or their place of effective management or their main business purpose in Italy for the greater part of the tax year) are deemed to be held in Italy.
Subject to certain exceptions, transfers of assets and rights (including the common shares and the special voting shares in Ferrari) on death or by gift are generally subject to inheritance and gift tax as follows:
a.
At a rate of 4 percent in case of transfers made to the spouse or relatives in direct line, on the portion of the global net value of the transferred assets, if any, exceeding, for each beneficiary, €1,000,000.00.
b.
At a rate of 6 percent in case of transfers made to relatives up to the fourth degree or relatives-in-law up to the third degree on the entire value of the transferred assets (in the case of transfers to brothers or sisters, the six percent rate is applicable only on the portion of the global net value of the transferred assets, if any, exceeding, for each beneficiary, €100,000.00).
c.
At a rate of 8 percent in any other case.
If the transfer is made in favor of persons with severe disabilities, the tax applies on the value exceeding €1,500,000.00 at the rates illustrated above, depending on the type of relationship existing between the deceased or donor and the beneficiary.
As of January 1, 2017, assets and rights (i) segregated in a trust, or (ii) allocated to special funds by entering into a fiduciary contract, or (iii) encumbered by special purpose liens under Article 2645- ter of the Italian Civil Code, in favor of persons with severe disabilities are exempt from the Italian inheritance and gift tax, provided that all the conditions set out in Article 6 of Law No. 112 of June 22, 2016 are met. The exemption from Italian inheritance and gift tax also applies to the re-transfer of assets and rights if the death of the beneficiary occurs before the death of the settlor.
Stamp Duty
Under Article 13(2 bis -2 ter ) of Decree No. 642 of October 26, 1972, a 0.20 percent stamp duty generally applies on communications and reports that Italian financial intermediaries periodically send to their clients in relation to the financial products that are deposited with such intermediaries. Shares are included in the definition of financial products for these purposes. Communications and reports are deemed to be sent at least once a year even if the Italian financial intermediary is under no obligation to either draft or send such communications and reports.
The stamp duty cannot exceed €14,000.00 per year for investors other than individuals.
Based on the wording of the law and the implementing decree issued by the Italian Ministry of Finance on May 24, 2012, the 0.20 percent stamp duty does not apply to communications and reports that the Italian financial intermediaries send to investors who do not qualify as “clients” according to the regulations issued by the Bank of Italy. Communications and reports sent to this type of investors are subject to the ordinary €2.00 stamp duty for each copy.

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The taxable base of the stamp duty is the market value or - in the lack thereof - the nominal value or the redemption amount of any financial product.
Wealth Tax on Financial Products Held Abroad
Under Article 19 of Decree No. 201 of December 6, 2011, recently amended by Finance Act 2020, individuals, non-business entities and non-business partnerships resident for tax purposes in Italy, which hold certain financial products outside of Italian territory (including shares) are required to pay a wealth tax at the rate of 0.20 percent. The wealth tax applies on the market value at the end of the relevant year or - in the lack thereof - on the nominal value or the redemption value of such financial products held outside of Italian territory. Taxpayers may deduct from the Italian wealth tax a tax credit equal to any wealth tax paid in the country where the financial products are held (up to the amount of the Italian wealth tax due).
Certain Reporting Obligations for Italian Resident Holders
Under Law Decree No. 167 of June 28, 1990, individuals, non-business entities and non-business partnerships that are resident in Italy for tax purposes and, during the fiscal year, hold financial assets abroad (including possibly the common shares and the special voting shares in Ferrari) must, in certain circumstances, disclose these financial assets to the Italian tax authorities in section RW of their income tax return (or if the income tax return is not due, in a proper form that must be filed within the same term as prescribed for the annual income tax return), regardless of the value of such assets (save for deposits or bank accounts having an aggregate value not exceeding €15,000.00 throughout the year). The requirement applies also if the persons above, being not the direct holder of the financial assets, are the beneficial owners thereof for the purposes of anti-money laundering legislation.
No disclosure requirements exist for financial assets (including the common shares and the special voting shares in Ferrari) under management or administration entrusted to Italian resident intermediaries (Italian banks, broker-dealers (SIM), fiduciary companies or other professional intermediaries as indicated under Article 1 of Law Decree No. 167 of June 28, 1990) and for contracts concluded through their intervention, provided that the cash flows and the income derived from such assets and contracts have been subjected to Italian withholding tax or substitute tax by such intermediaries.

F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.

H. Documents on Display
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company, at http:// www.sec.gov . The address of the SEC’s website is provided solely for information purposes and is not intended to be an active link. Reports and other information concerning the business of Ferrari may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005.

We also make our periodic reports as well as other information filed with or furnished to the SEC available, free of charge, through our website, at http://corporate.ferrari.com , as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference in this document.

I. Subsidiary Information
Not applicable.

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Item 11. Quantitative and Qualitative Disclosures About Market Risk
Due to the nature of our business, we are exposed to a variety of market risks, including foreign currency exchange rate risk and to a lesser extent, interest rate risk.
Our exposure to foreign currency exchange rate risk arises from the geographic distribution of our shipments, as we generally sell our models in the currencies of the various markets in which we operate, while our industrial activities are all based in Italy, and primarily denominated in Euro.
Our exposure to interest rate risk arises from the need to fund certain activities and the necessity to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing our net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
These risks could significantly affect our financial position, results of operations and cash flows, and for this reason these risks are identified and monitored, in order to detect potential negative effects in advance and take the necessary actions to mitigate them, primarily through our operating and financing activities and if required, through the use of derivative financial instruments.
We have in place various risk management policies, which primarily relate to foreign exchange, interest rate and liquidity risks. Our risk management policies permit derivatives to be used for managing exposures to foreign exchange rates and interest rates. Counterparties to these agreements are major financial institutions. Derivative financial instruments can only be executed for hedging purposes.
In particular, we have used derivative financial instruments as cash flow hedges for the purpose of limiting the negative impact of foreign currency exchange fluctuations on forecasted transactions denominated in foreign currencies.

Accordingly, as a result of applying risk management policies with respect to foreign currency exchange exposure, our results of operations have not been fully exposed to fluctuations in foreign currency exchange rates. However, despite these risk management policies and hedging transactions, sudden adverse movements in foreign currency exchange rates could have a significant effect on the Group’s earnings and cash flows.
We also enter into interest rate caps as requested by certain of our securitization agreements.
The following section provides qualitative and quantitative disclosures on the effect that these risks may have. The quantitative data reported in the following section does not have any predictive value, in particular the sensitivity analysis on finance market risks does not reflect the complexity of the market or the reaction which may result from any changes that are assumed to take place.

Quantitative information on foreign currency exchange rate risk
We are exposed to risk resulting from changes in foreign currency exchange rates, which can affect our earnings and equity. In particular:
•
Where a Group company incurs costs in a currency different from that of its revenues, any change in foreign currency exchange rates can affect the operating results of that company. In 2019 , the total trade flows exposed to foreign currency exchange rate risk amounted to the equivalent of 53 percent of the Group’s net revenues ( 49 percent in 2018 ).
•
The main foreign currency exchange rate to which the Group is exposed is the Euro/U.S. Dollar for sales in U.S. Dollar in the United States and other markets where the U.S. Dollar is the reference currency. In 2019 , the value of commercial activity exposed to fluctuations in the Euro/U.S. Dollar exchange rate accounted for approximately 53 percent ( 57 percent in 2018 ) of the total currency risk from commercial activity. In 2019, the commercial activities exposed to the Euro/Pound Sterling exchange rate and to the Euro/Japanese Yen exchange rate exceeded 10 percent (in 2018 only Euro/Pound Sterling exceeded 10 percent) of the total currency risk from commercial activity. Other significant exposures included the exchange rate between the Euro and the following currencies: Swiss Franc, Chinese Renminbi, Canadian Dollar and Australian Dollar. None of these exposures, taken individually, exceeded 10 percent of the Group’s total foreign currency exchange rate exposure for commercial activity in 2019 . It is the Group’s policy to use derivative

153


financial instruments (primarily forward currency contracts, currency swaps and currency options) to hedge up to 90 percent of certain exposures to foreign currency exchange risk for up to twelve months.
•
Several subsidiaries are located in countries that are outside the Eurozone, in particular the United States, the United Kingdom (branch), Switzerland, Mainland China, Hong Kong, Japan, Australia and Singapore. As the Group’s reporting currency is the Euro, the income statements of those companies are translated into Euro using the average exchange rate for the period and, even if revenues and margins are unchanged in local currency, changes in exchange rates can impact the amount of revenues, costs and profit as restated in Euro.
•
The amount of assets and liabilities of consolidated companies that report in a currency other than the Euro may vary from period to period as a result of changes in exchange rates. The effects of these changes are recognized directly in equity as a component of other comprehensive income/(loss) under gains/(losses) from currency translation differences.
The Group monitors its principal exposure to translation exchange risk, although there was no specific hedging in this respect at the reporting date.
Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements, are recognized in the consolidated income statement within the net financial income/(expenses) line item or as cost of sales for charges arising from financial services companies. The Group uses specific financial derivatives to hedge certain of these exposures.

The impact of foreign currency exchange rate differences recorded within financial income/(expenses) for the year ended December 31, 2019 , except for those arising on financial instruments measured at fair value, amounted to net losses of €24,237 thousand (net losses of €13,293 thousand and €18,059 thousand for the years ended December 31, 2018 and 2017 , respectively).

All of the Group’s financial services activities are conducted in the functional currency of the related financial services companies, therefore the impact of foreign currency exchange rate differences arising from financial services activities is nil in all periods presented.

Except as noted above, there have been no substantial changes in 2019 in the nature or structure of exposure to foreign currency exchange rate risk or in the Group’s hedging policies.

The potential decrease in fair value of derivative financial instruments held by the Group at December 31, 2019 to hedge against foreign currency exchange rate risk, which would arise in the case of a hypothetical, immediate and adverse change of 10 percent in the exchange rates of the major foreign currencies with the Euro, would be approximately €74,700 thousand ( €106,400 thousand at December 31, 2018 ). Receivables, payables and future trade flows for which hedges have been put in place were not included in the analysis. It is reasonable to assume that changes in foreign currency exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged. The sensitivity analysis is based on currency hedging in place at the end of the period, which can vary during the period and assumes unchanged market conditions other than exchange rates, such as volatility and interest rates. For this reason, it is purely indicative.

Quantitative information on interest rate risk
Our exposure to interest rate risk, though less significant, arises from the need to fund financial services activities and the necessity to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing our net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
Our most significant floating rate financial assets at December 31, 2019 were cash and cash equivalents and certain receivables from financing activities (related to client and dealer financing), while 39 percent of our gross debt bears floating rates of interest. At December 31, 2019 , a decrease of 10 basis points in interest rates on floating rate financial assets and debt, with all other variables held constant, would have resulted in a decrease in profit before taxes of €205 thousand on an annual basis (a decrease of €251 thousand at December 31, 2018 ). The analysis is based on the assumption that floating rate financial assets and debt which expires during the projected 12 -month period will be renewed or reinvested in similar instruments, bearing the hypothetical short-term interest rates.


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Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.

155


PART II

Item 13. Defaults, Dividends Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision, and with the participation, of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2019 pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with IFRS.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation in accordance with IFRS.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, using the criteria set forth in the “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management believes that, as of December 31, 2019, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. That report is included herein.
Changes in Internal Control
No change to our internal control over financial reporting occurred during the year ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

156


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of
Ferrari N.V.

Opinion on Internal Control over Financial Reporting
We have audited Ferrari N.V.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ferrari N.V. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of Ferrari N.V. as of December 31, 2019 and 2018, and the related consolidated income statements, statements of comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2019, and the related notes, and our report dated February 18, 2020 expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ EY S.p.A.

Milan, Italy

February 18, 2020

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Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that Mr. Sergio Duca is the “audit committee financial expert.” Mr. Sergio Duca is an independent director under NYSE standards.
Item 16B. Code of Ethics
We have adopted a Code of Conduct which applies to all of our employees, including our principal executive, principal financial and principal accounting officers. Our Code of Conduct is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act. Our Code of Conduct is posted on our website at http://corporate.ferrari.com/en/governance/code-conduct. If the provisions of our Code of Conduct that apply to our principal executive officer, principal financial officer or principal accounting officer are amended, or if a waiver is granted, we will disclose such amendment or waiver.
Item 16C. Principal Accountant Fees and Services
EY S.p.A., the member firms of Ernst & Young and their respective affiliates (collectively, the Ernst & Young Entities) were appointed to serve as our independent registered public accounting firm for the years ended December 31, 2019 and 2018 . We incurred the following fees from the Ernst & Young Entities for professional services for the years ended December 31, 2019 and 2018 , respectively:
For the years ended December 31,
2019
2018
(€ thousands)
Audit fees
1,150

1,340
Tax fees
—

12
Audit-related fees
139

5
Total
1,289

1,357

“Audit Fees” are the aggregate fees earned by the Ernst & Young Entities for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Tax fees” are the aggregate fees charged by Ernst & Young Entities for professional services rendered for tax compliance activities. “Audit-related Fees” are fees charged by the Ernst & Young Entities for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees for the audit of employee benefit plans and pension plans, agreed-upon procedure engagements and other attestation services subject to regulatory requirements.
Audit Committee’s pre-approval policies and procedures
Our Audit Committee nominates and engages our independent registered public accounting firm to audit our consolidated financial statements. Our Audit Committee has a policy requiring management to obtain the Audit Committee’s approval before engaging our independent registered public accounting firm to provide any other audit or permitted non-audit services to us or our subsidiaries. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of our independent registered public accounting firm, the Audit Committee reviews and pre-approves (if appropriate) specific audit and non- audit services in the categories Audit Services, Audit-Related Services, Tax Services, and any other services that may be performed by our independent registered public accounting firm.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.

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Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
A multi-year Euro 1.5 billion total share repurchase program expected to be executed between 2019 and 2022 was announced by the Company at the 2018 Capital Markets Day.
On December 28, 2018, Ferrari announced the launch of a share repurchase program for the repurchase of up to Euro 150 million in common shares as part of the above mentioned multi-year Euro 1.5 billion total share repurchase program (the “First Tranche”), which started on January 2, 2019 and was completed on June 26, 2019. The First Tranche implemented a resolution adopted on April 13, 2018 by Ferrari’s Annual General Meeting of Shareholders (the “2018 AGM”), which delegated to the Board of Directors the authority to purchase common shares of Ferrari from time to time in the 18 months following the 2018 AGM, up to a maximum of 10% of Ferrari’s issued common shares as of the date of the 2018 AGM, at a price not higher than 10% above or more than 10% below the average of the closing price of the common shares on the NYSE and/or MTA for the five business days prior to the date of the purchase.
The 2018 AGM share repurchase authority was renewed by the resolution of Ferrari’s Annual General Meeting of Shareholders of April 12, 2019 (the “2019 AGM”), which extended the share repurchase authorization to the Board of Directors until October 11, 2020 up to a maximum number of common shares equal to 10% of the Company’s issued common shares on April 12, 2019 at a purchase price per share between, on the one hand, an amount equal to the par value of the shares and, on the other hand, an amount equal to 110% of the market price of the shares on the NYSE and/or MTA, the market price being the average of the highest price on each of the five days of trading prior to the date of the purchase.
On July 1, 2019, Ferrari announced the launch of a second tranche of up to Euro 200 million in common share repurchases (the “Second Tranche”) under the above mentioned multi-year repurchase program. The Second Tranche commenced on July 2, 2019 and was completed on November 12, 2019.
On November 14, 2019, Ferrari announced the launch of a third tranche of up to Euro 200 million in common share repurchases (the “Third Tranche”) under the above mentioned multi-year repurchase program. The Third Tranche commenced on 15 November 2019 and will end and will end no later than June 24, 2020.
As of December 31, 2019, Ferrari’s common shares held in treasury amounted to 8,640,176 and special voting shares held in treasury amounted to 2,190 .
The following table reports purchases of Ferrari equity securities by the Company during the year ended December 31, 2019, which were made under the First Tranche, the Second Tranche and the Third Tranche of Ferrari’s above mentioned multi-year repurchase program.
Period
Total Number of Shares Purchased
Average Price
Paid per Share
(€) (1)(2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Value of Shares that May Yet Be Purchased under the Plans or Programs
(€)
Jan 1 to Jan 31, 2019
244,062
95.52
244,062
1,476,688,255
Feb 1 to Feb 28, 2019
116,295
110.99
116,295
1,463,780,901
March 1 to March 31, 2019
121,066
115.12
121,066
1,449,843,381
April 1 to April 30, 2019
130,774
121.31
130,774
1,433,978,658
May 1 to May 31, 2019
270,831
126.49
270,831
1,399,722,199
June 1 to June 30, 2019
361,532
136.44
361,532
1,350,393,195
July 1 to July 31, 2019
283,842
148.34
283,842
1,308,288,831
Aug 1 to Aug 31, 2019
223,375
141.22
223,375
1,276,744,485
Sept 1 to Sept 30, 2019
573,323
138.67
573,323
1,197,242,026
Oct 1 to Oct 31, 2019
316,283
136.88
316,283
1,153,949,232
Nov 1 to Nov 30, 2019
127,772
150.87
127,772
1,134,672,162
Dec 1 to Dec 31, 2019
138,547
149.88
138,547
1,113,906,308
Total
2,907,702

2,907,702


159


(1)
On December 28, 2018, Ferrari announced the launch of the First Tranche, to repurchase up to €150 million in common shares. The First Tranche was authorized by the 2018 AGM. The authorization was initially granted for a period of 18 months from the date of such 2018 AGM (therefore expiring on October 12, 2019) and was subsequently extended by the 2019 AGM until October 11, 2020. The First Tranche was completed on June 26, 2019. On July 1, 2019, Ferrari announced the launch of the Second Tranche, to repurchase up to €200 million in common shares. The Second Tranche was authorized by the 2019 AGM. The Second Tranche commenced on July 2, 2019 and was completed on November 12, 2019. On November 14, 2019, Ferrari announced the launch of the Third Tranche, to repurchase up to €200 million in common shares. The Third Tranche was authorized by the 2019 AGM. The Third Tranche commenced on 15 November 2019 and is to end no later than June 24, 2020.
(2)
Share repurchases made on the NYSE have been translated into Euro from U.S. Dollars at the exchange rate reported by the European Central Bank on the respective transaction dates.

Item 16F. Change in Registrant ’ s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Ferrari N.V. is a company organized under the laws of The Netherlands and qualifies as a foreign private issuer under the NYSE listing standards. In accordance with the NYSE corporate governance rules, as a foreign private issuer we are permitted to follow home-country practice in some circumstances in lieu of the provisions of the corporate governance rules contained in Section 303A of the NYSE Listed Company Manual that are applicable to U.S. companies. In addition, we must disclose any significant ways in which our corporate governance practices differ from those followed by U.S. companies listed on the NYSE.
Both the Dutch and NYSE corporate governance regimes were adopted with the goal of fostering trust and confidence in the honesty, integrity and transparency of how business is conducted at and by public companies. Because these corporate governance regimes are based on the same principles, they are similar in many respects. However, certain differences exist between Dutch and NYSE corporate governance rules, as summarized below. We believe that our corporate governance practices and guidelines are consistent, in principle, with those required of U.S. companies listed on the NYSE. In addition, we endorse the principles and Best Practice Provisions of the Dutch Corporate Governance Code, or the “Dutch Code”. In contrast to NYSE rules applicable to U.S. companies, the Dutch Code is based on the “comply or explain” principle. As a result, deviations from the best practice provisions of the Dutch Code are allowed, as long as they are explained in our annual report.

The discussion below summarizes the significant differences between our corporate governance practices and the NYSE standards applicable to U.S. companies, as well as certain ways in which our governance practices deviate from those suggested in the Dutch Code.
Dutch legal requirements concerning director independence differ in certain respects from the rules applicable to U.S. companies listed on the NYSE. While under most circumstances both regimes require that a majority of board members be “independent,” the definition of this term under the Dutch Code differs from the definition used under the NYSE corporate governance standards. In some cases the Dutch requirement is more stringent, such as by requiring a longer “look- back” period (five years) for former executive directors and employees and by requiring that in certain circumstances only one non-executive board member may be not “independent” within the meaning of the Dutch Code. The Dutch Code recommends, specifically for one-tier governance structures, that a majority of the members of the board be non-executive and independent. Currently, a majority of our Board is “independent” under the NYSE definition (8 of the 10 members) and the Dutch Code (7 of the 10 members). Finally, pursuant to Dutch law, persons may not be appointed as non-executive directors of Ferrari if such persons are non-executive director, member of the supervisory board or other similar bodies for five or more (Dutch) companies of a certain size and such persons cannot be appointed as executive directors of Ferrari if such persons are non-executive director at more than two other (Dutch) companies of a certain size or if such person is the chairperson of the board of supervisors or the one tier board of another (Dutch) company of a certain size.

The NYSE requires that, when an audit committee member of a U.S. domestic listed company serves on four or more audit committees of public companies, the listed company should disclose (either on its website or in its annual proxy statement or annual report on Form 10-K) that the board of directors has determined that this simultaneous service would not impair the director’s service to the listed company. As a foreign private issuer we do not have to comply with this requirement. Dutch law does not require the Company to make such a determination.
NYSE rules require a U.S. listed company to have a compensation committee and a nominating/corporate governance committee composed entirely of independent directors. As a foreign private issuer, we do not have to comply with this requirement,

160


although we do have a Compensation Committee and a Governance and Sustainability Committee. Our Compensation Committee Charter states that a maximum of one member of the Compensation Committee may be non-independent according to the Dutch Code. All three of the current members of the Compensation Committee are independent under the NYSE rules and two of the members are independent under the Dutch Code. Our Governance and Sustainability Committee Charter states that the Committee shall be comprised of at least three directors, elected by the Board of Directors, which shall also appoint one of them as chairperson of the Governance and Sustainability Committee, or Chairperson. Of the directors elected to serve on the Committee, at least half must be independent under the Dutch Code and no more than one may be an executive director. This is a deviation from the Dutch Code which recommends that only non-executive directors serve on board committees. We allow for an executive Director to serve on the Governance and Sustainability Committee, because we believe that the Committee’s broad duties benefit from the presence of an executive board member. The position of Mr. John Elkann, being non-independent, in this committee inter alia follows from the duties of the governance and sustainability committee, which are more extensive than the duties of a selection and appointment committee. These duties warrant participation of Mr. John Elkann, who brings valuable contributions to this committee in light of his knowledge of the automotive and luxury industries, as well as the Company’s business. In addition to Mr Elkann, who is the Chairperson, the two other members of this committee are considered independent under the Dutch Corporate Governance Code and the NYSE rules.
In contrast to NYSE rules applicable to U.S. companies, which require that external auditors be appointed by the Audit Committee, the general rule under Dutch law is that external auditors are appointed by the general meeting of shareholders. In accordance with the requirements of Dutch law, the appointment and removal of our independent registered public accounting firm must be resolved upon by the general meeting of shareholders. Our Audit Committee is responsible for recommending to the shareholders the appointment and compensation of the independent registered public accounting firm and, inter alia , oversees and evaluates the work of our independent registered public accounting firm.
Under NYSE listing standards, shareholders of U.S. companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with limited exceptions set forth in the NYSE rules. As a foreign private issuer we are permitted to follow our home country laws regarding shareholder approval of compensation plans, and, under Dutch law, such approval from shareholders is not required for equity compensation plans for employees other than the members of the Board of Directors, provided that the authority to grant equity rights has been delegated by the general meeting of shareholders to the Board of Directors. For equity compensation plans for members of the Board of Directors and/or in the event that the authority to issue shares and/or rights to subscribe for shares has not been delegated to the Board of Directors, approval of the general meeting of shareholders is required.
While NYSE rules do not require listed companies to have shareholders approve or declare dividends, the Dutch Code requires that a dividend distribution be a separate agenda item in the general meeting of shareholders, in which the annual accounts are adopted. In our case, Article 23 of our Articles of Association provides that annual dividends must be resolved upon by our general meeting of shareholders. For a discussion of our dividend policy, see “Item 8.A . Consolidated Statements and Other Financial Information—Dividend Policy .”
In accordance with the corporate governance rules of the NYSE applicable to foreign private issuers, we also disclose these differences between our corporate governance practices and those required of domestic companies by the NYSE listing standards on our website at www.ferrari.com.

Item 16H. Mine Safety Disclosure
Not applicable.

161


PART III
Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this item.
Item 18. Financial Statements
The audited Consolidated Financial Statements as required under Item 18 are attached hereto starting on page F-1 of this Form 20-F.
Item 19. Exhibits
Exhibit Number
Description of Documents
1.1
1.2
2.1

2.2
2.3
4.1
4.2
8.1
12.1
12.2
13.1
13.2
23
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

Certain instruments with respect to our long-term debt have not been filed as an exhibit to this annual report on Form 20-F because the total amount of debt authorized under any such instrument does not exceed 10% of our total assets and those of our subsidiaries on a consolidated basis. We agree to furnish a copy of each such instrument to the Securities and Exchange Commission upon request.


162


SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Ferrari N.V.
By:
/s/ Antonio Picca Piccon
Name: Antonio Picca Piccon
Title: Chief Financial Officer
Dated: February 18, 2020

163



Ferrari N.V.


F-1


REPORT OF INDEPENDENT REGISTRED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
Ferrari N.V.


Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Ferrari N.V. (the “Company”) as of December 31, 2019 and 2018, and the related consolidated income statements, statements of comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, as well as International Financial Reporting Standards as adopted by the European Union.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2020 expressed an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


F-2


Warranty and recall campaigns provision
Description of the Matter

As more fully described in Notes 2 and 23 to the consolidated financial statements, the Company establishes a provision for product warranties at the time the sale is recognized to guarantee the performance of vehicles from defects that may become apparent within a certain period or term. In addition, the group periodically initiates voluntary service actions to address various client satisfaction, safety and emissions issues related to cars sold. The provision includes management’s estimate of the expected cost to fulfill the obligations over the contractual warranty period. Such estimate is developed on assumptions over expected costs to be incurred based on the group’s historical claims or costs experience, including the cost of parts and services. As at December 31, 2019 the warranty and recall campaigns provision amounted to €108 million.
Future costs of these actions are subject to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by warranty or recall actions and the nature of the corrective action that may result in adjustments to the established provision. The costs related to this provision are recognized within cost of sales.
Auditing the warranty and recall campaign provision was complex in consideration of the judgment required to develop assumptions around future costs to be incurred for warranty and recall campaigns, especially for newly launched models or vehicles, and the complexity of the calculation involved.

How We Addressed the Matter in Our Audit

The procedures performed designed to address the matter in our audit included, among others, obtaining an understanding of the warranty and recall campaign provisioning process, evaluating the group’s accounting policy, and assessing the design and operating effectiveness of internal controls relevant to this area, specifically related to management’s assumptions developed to estimate future costs to be incurred. We assessed the methodology and assumptions used by management in estimating future costs for warranty programs and recall campaigns, and assessed any changes, or the lack thereof, from the prior year. We tested the completeness and accuracy of the underlying data.
We further completed analytical procedures over the accrued provision and retrospective analyses comparing the provisions recorded by the group against actual spending for warranty and recall service costs to evaluate the cost assumptions used by management. Lastly, we assessed the adequacy of the warranty and recall campaign disclosures included in the notes to the consolidated financial statements.





/s/ EY S.p.A.

We have served as the Company’s auditor since 2015.


Milan, Italy

February 18, 2020





F-3


Ferrari N.V.
CONSOLIDATED INCOME STATEMENT
for the years ended December 31, 2019 , 2018 and 2017

For the years ended December 31,
Note
2019
2018
2017
(€ thousand)
Net revenues
4
3,766,615

3,420,321

3,416,890

Cost of sales
5
1,805,310

1,622,905

1,650,860

Selling, general and administrative costs
6
343,179

327,341

329,065

Research and development costs
7
699,211

643,038

657,119

Other expenses, net

4,991

3,195

6,867

Result from investments
8
3,522

2,665

2,437

EBIT
917,446

826,507

775,416

Net financial expenses
9
42,082

23,563

29,260

Profit before taxes
875,364

802,944

746,156

Income tax expense
10
176,656

16,317

208,760

Net profit
698,708

786,627

537,396

Net profit attributable to:
Owners of the parent
695,818

784,678

535,393

Non-controlling interests
3
2,890

1,949

2,003

Basic earnings per common share (in €)
12
3.73

4.16

2.83

Diluted earnings per common share (in €)
12

3.71


4.14


2.82





















The accompanying notes are an integral part of the Consolidated Financial Statements.

F-4


Ferrari N.V.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the years ended December 31, 2019 , 2018 and 2017
For the years ended December 31,
Note
2019
2018
2017
(€ thousand)
Net profit
698,708

786,627

537,396

Items that will not be reclassified to the consolidated income statement in subsequent periods:
(Losses)/Gains on remeasurement of defined benefit plans
20
(2,078
)
385

(730
)
Related tax impact
20
456

(88
)
203

Total items that will not be reclassified to the consolidated income statement in subsequent periods
(1,622
)
297

(527
)
Items that may be reclassified to the consolidated income statement in subsequent periods:
(Losses)/Gains on cash flow hedging instruments
20
(2,272
)
(13,034
)
34,971

Exchange differences on translating foreign operations
20
2,652

5,986

(15,346
)
Related tax impact
20
610

3,608

(9,757
)
Total items that may be reclassified to the consolidated income statement in subsequent periods
990

(3,440
)
9,868

Total other comprehensive (loss)/income, net of tax
(632
)
(3,143
)
9,341

Total comprehensive income
698,076

783,484

546,737

Total comprehensive income attributable to:
Owners of the parent
695,075

781,585

545,071

Non-controlling interests
3,001

1,899

1,666


















The accompanying notes are an integral part of the Consolidated Financial Statements.

F-5


Ferrari N.V.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at December 31, 2019 and 2018
At December 31,
Note
2019
2018
(€ thousand)
Assets
Goodwill
13
785,182

785,182

Intangible assets
14
837,938

645,797

Property, plant and equipment
15
1,069,652

850,550

Investments and other financial assets
16
38,716

32,134

Deferred tax assets
10
73,683

60,744

Total non-current assets
2,805,171

2,374,407

Inventories
17
420,051

391,064

Trade receivables
18
231,439

211,399

Receivables from financing activities
18
966,448

878,496

Current tax receivables
18
21,078

128,234

Other current assets
18
92,830

64,295

Current financial assets
19
11,409

10,174

Cash and cash equivalents
897,946

793,664

Total current assets
2,641,201

2,477,326

Total assets
5,446,372

4,851,733

Equity and liabilities
Equity attributable to owners of the parent
1,481,290

1,348,722

Non-controlling interests
3
5,998

5,117

Total equity
20
1,487,288

1,353,839

Employee benefits
22
88,116

86,575

Provisions
23
165,572

182,539

Deferred tax liabilities
10
82,208

39,142

Debt
24
2,089,737

1,927,167

Other liabilities
25
800,015

589,743

Other financial liabilities
19
14,791

11,342

Trade payables
26
711,539

653,751

Current tax payables
7,106

7,635

Total equity and liabilities
5,446,372

4,851,733









The accompanying notes are an integral part of the Consolidated Financial Statements.

F-6


Ferrari N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 2019 , 2018 and 2017
For the years ended December 31,
2019
2018
2017
(€ thousand)
Cash and cash equivalents at beginning of the year
793,664

647,706

457,784

Cash flows from operating activities:
Profit before taxes
875,364

802,944

746,156

Amortization and depreciation
351,946

288,748

260,606

Provision accruals
14,253

15,573

13,473

Result from investments
(3,522
)
(2,665
)
(2,437
)
Net finance costs
42,082

23,563

29,260

Other non-cash expenses, net
38,563

33,012

43,453

Net gains on disposal of property, plant and equipment and intangible assets
424

(283
)
(2,585
)
Change in inventories
(40,627
)
(4,638
)
(88,483
)
Change in trade receivables
(22,377
)
26,890

(1,745
)
Change in trade payables
53,940

40,317

29,333

Change in receivables from financing activities
(76,694
)
(107,353
)
(44,123
)
Change in other operating assets and liabilities
145,547

(83,013
)
(72,803
)
Finance income received
3,274

2,657

4,402

Finance costs paid
(42,600
)
(13,966
)
(36,222
)
Income tax paid
(33,480
)
(87,745
)
(215,486
)
Total
1,306,093

934,041

662,799

Cash flows used in investing activities:
Investments in property, plant and equipment
(352,154
)
(300,794
)
(188,904
)
Investments in intangible assets
(353,458
)
(337,542
)
(202,506
)
Proceeds from the sale of property, plant and equipment and intangible assets
4,539

1,392

3,663

Proceeds from exercising the Delta Topco option
—

—

8,307

Total
(701,073
)
(636,944
)
(379,440
)
Cash flows used in financing activities:
Proceeds from the issuance of bonds and notes

298,316


—


694,172

Repayment of bonds and notes
(315,395
)

—


—

Net change in bank borrowings
(3,516
)
(3,584
)
(790,869
)
Proceeds from securitizations, net of repayments
92,173

94,709

141,115

Net change in lease liabilities
(3,896
)

—


—

Net change in other debt
12,322

(7,988
)
(8,280
)
Dividends paid to owners of the parent
(192,664
)
(133,095
)
—

Cash distribution of reserves
—

—

(119,985
)
Share repurchases
(386,749
)
(100,093
)
—

Dividends paid to non-controlling interest
(2,120
)
(2,040
)
(1,218
)
Total
(501,529
)
(152,091
)
(85,065
)
Translation exchange differences
791

952

(8,372
)
Total change in cash and cash equivalents
104,282

145,958

189,922

Cash and cash equivalents at end of the year
897,946

793,664

647,706









The accompanying notes are an integral part of the Consolidated Financial Statements.

F-7


Ferrari N.V.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the years ended December 31, 2019 , 2018 and 2017

Share capital
Retained earnings
and other reserves
Cash flow hedge reserve
Currency translation differences
Remeasurement of defined benefit plans
Equity attributable to owners of the parent
Non-controlling interests
Total
(€ thousand)
At January 1, 2017
2,504

302,336

(18,780
)
46,823

(7,888
)
324,995

4,810

329,805

Net profit
—

535,393

—

—

—

535,393

2,003

537,396

Other comprehensive income/(loss)
—

—

25,214

(15,009
)
(527
)
9,678

(337
)
9,341

Cash distribution of reserves
—

(119,985
)
—

—

—

(119,985
)
—

(119,985
)
Dividends to non-controlling interests
—

—

—

—

—

—

(1,218
)
(1,218
)
Share-based compensation
—

28,597

—

—

—

28,597

—

28,597

At December 31, 2017
2,504

746,341

6,434

31,814

(8,415
)
778,678

5,258

783,936

Net profit
—

784,678

—

—

—

784,678

1,949

786,627

Other comprehensive (loss)/income
—

—

(9,426
)
6,036

297

(3,093
)
(50
)
(3,143
)
Dividends to owners of the parent
—

(133,939
)
—

—

—

(133,939
)
—

(133,939
)
Dividends to non-controlling interests
—

—

—

—

—

—

(2,040
)
(2,040
)
Share repurchases
—

(100,093
)
—

—

—

(100,093
)
—

(100,093
)
Share-based compensation
—

22,491

—

—

—

22,491

—

22,491

At December 31, 2018
2,504

1,319,478

(2,992
)
37,850

(8,118
)
1,348,722

5,117

1,353,839

Net profit
—

695,818

—

—

—

695,818

2,890

698,708

Other comprehensive (loss)/income
—

—

(1,662
)
2,541

(1,622
)
(743
)
111

(632
)
Dividends to owners of the parent
—

(193,238
)
—

—

—

(193,238
)
—

(193,238
)
Dividends to non-controlling interests
—

—

—

—

—

—

(2,120
)
(2,120
)
Share repurchases
—

(386,749
)
—

—

—

(386,749
)
—

(386,749
)
Share-based compensation
—

17,480

—

—

—

17,480

—

17,480

Special voting shares issuance (1)
69

(69
)
—

—

—

—

—

—

At December 31, 2019
2,573

1,452,720

(4,654
)
40,391

(9,740
)
1,481,290

5,998

1,487,288

____________________________
(1)
See Note 20 “Equity” for additional details.











The accompanying notes are an integral part of the Consolidated Financial Statements.

F-8

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018



1. BACKGROUND AND BASIS OF PRESENTATION
Background
Ferrari is among the world’s leading luxury brands. The activities of Ferrari N.V. (herein referred to as “Ferrari” or the “Company” and together with its subsidiaries the “Group”) and its subsidiaries are focused on the design, engineering, production and sale of luxury performance sports cars. The cars are designed, engineered and produced in Maranello and Modena, Italy and sold in more than 60 markets worldwide through a network of 166 authorized dealers operating 187 points of sale. The Ferrari brand is licensed to a selected number of producers and retailers of luxury and lifestyle goods, with Ferrari branded merchandise also sold through a network of 20 Ferrari-owned stores and 24 franchised stores (including 15 Ferrari Store Junior), as well as on the Group’s website. To facilitate the sale of new and pre-owned cars, the Group provides various forms of financing to clients and dealers, including through cooperation and other agreements. Ferrari also participates in the Formula 1 World Championship through Scuderia Ferrari. The activities of Scuderia Ferrari are the core element of Ferrari marketing and promotional activities and an important source of innovation to support the technological advancement of Ferrari range models.

Basis of preparation
Authorization of consolidated financial statements and compliance with International Financial Reporting Standards
These consolidated financial statements of Ferrari N.V. were authorized for issuance on February 18, 2020.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), as well as IFRS as adopted by the European Union. There is no effect on these consolidated financial statements resulting from differences between IFRS as issued by the IASB and IFRS as adopted by the European Union. The designation IFRS also includes International Accounting Standards (“IAS”) as well as all the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC” and “SIC”).
The consolidated financial statements are prepared under a going concern basis and applying the historical cost method, modified as required for the measurement of certain financial instruments.
The Group’s presentation currency is the Euro, which is also the functional currency of the Company, and unless otherwise stated information is presented in thousands of Euro.

2. SIGNIFICANT ACCOUNTING POLICIES
Format of the financial statements
The consolidated financial statements include the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and the accompanying notes (the “Consolidated Financial Statements”).
For presentation of the consolidated income statement, the Group uses a classification based on the function of expenses, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice.
In the consolidated income statement, the Group also presents a subtotal for Earnings Before Interest and Taxes (EBIT). EBIT distinguishes between the profit before taxes arising from operating items and those arising from financing activities. EBIT is one of the primary measures used by the Group’s Chief Operating Decision Maker (“CODM”) to assess performance.
For the consolidated statement of financial position, a mixed format has been selected to present current and non-current assets and liabilities, as permitted by IAS 1 paragraph 60. More specifically, the Consolidated Financial Statements include both industrial and financial services activities. Receivables from financing activities are included in current assets as the investments will be realized in their normal operating cycle. The funding for financial services activities is primarily obtained through securitization programs and funding from certain of the Group’s operating companies. This financial service structure within the Group does not allow the separation of financial liabilities funding the financial services operations (whose assets are reported

F-9

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


within current assets) and those funding the industrial operations. Presentation of financial liabilities as current or non-current based on their date of maturity would not facilitate a meaningful comparison with financial assets, which are categorized on the basis of their normal operating cycle. Disclosure as to the due date of the various components of debt is provided in Note 24.
The consolidated statement of cash flows is presented using the indirect method.
New standards and amendments effective from January 1, 2019
The following new standards and amendments that are applicable from January 1, 2019 were adopted by the Group for the preparation of these Consolidated Financial Statements.
IFRS 16 - Leases
Transition impact
The Group applied the simplified transition approach and has therefore recognized the impacts of adoption at January 1, 2019 without restating comparative figures for the period prior to adoption. The Group elected to use the exemptions permitted on transition for short term leases (contracts in which the lease terms ends within 12 months of the date of initial application) and lease contracts for which the underlying asset is of low value.

Upon adoption, the Group recognized right-of-use assets and corresponding lease liabilities in relation to leases which had previously been classified as operating lease under IAS 17, measured at the present value of the remaining lease payments over the lease term that have not been paid at the date of adoption, discounted using the Group’s incremental borrowing rate as of January 1, 2019, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. At January 1, 2019 this rate ranged from 1 percent to 5 percent based primarily on the country of the lessee and the remaining lease term of the underlying leased assets. The lease term includes both the non-cancellable periods for which the Group has the right to use the underlying assets and also any renewal periods if the Group is reasonably certain to exercise the related renewal option.

As of January 1, 2019, after considering the exemptions mentioned above, the Group had non-cancellable operating
lease commitments of approximately €74,930 thousand . Of these commitments, the Group recognized right-of-use assets and
related lease liabilities of €63,535 thousand .

The main contracts within the scope of IFRS 16 for which the Group is lessee primarily relate to Ferrari stores (included within other assets) and industrial buildings.
At December 31,
2019
At January 1,
2019
(€ thousand)
Industrial buildings
15,834

17,226

Plant, machinery and equipment
7,612

10,011

Other assets
34,319

36,298

Right-of-use assets
57,765

63,535

At January 1,
2019
(€ thousand)
Non-cancellable operating lease commitments
74,930

Lease contracts for which the underlying asset is of low value
(1,008
)
Lease contracts for which the lease terms ends within 12 months
(2,420
)
Discount of remaining lease payments
(7,967
)
Lease liabilities
63,535


F-10

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Upon adoption the Group did not recognize any deferred tax assets or liabilities in respect of temporary differences arising on initial recognition of right-of-use assets and lease liabilities as the initial recognition does not affect accounting profit or taxable profit.

For the year ended December 31, 2019 the impact of adopting the new standard resulted in the recognition of €17,067 thousand of depreciation of right-of-use assets and €1,172 thousand of financial expenses. Lease expenses that would have been recognized in the income statement under the previous lease standard, IAS 17, would have been €17,380 thousand .

There were no impacts arising on the application of IFRS 16 from the Group’s activities as lessor.

See “Leases” below for a description of the Group’s accounting policy with respect to leases.

IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments
The Group adopted IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments . The interpretation provides provides specific guidance to recognise and measure the accounting impact of tax uncertainties which IAS 12 did not address. Particularly, IFRIC 23 specifies how to determine the unit of account and the recognition and measurement guidance to be applied to that unit, as well as when to reconsider the accounting for a tax uncertainty. The interpretation is effective on or after January 1, 2019. The Group has reviewed its previously designed model to account for tax uncertainties and assessed that it is consistent with the more specific IFRIC 23 requirements.

Amendments to IFRS 9 - Financial Instruments
The Group adopted Amendments to IFRS 9 - Financial Instruments . These amendments allow, under certain conditions, for a prepayable financial asset with negative compensation payments to be measured at amortized cost or at fair value through other comprehensive income. The amendments also contain a clarification relating to the accounting for a modification or exchange of a financial liability measured at amortized cost that does not result in the derecognition of the financial liability. The amendments are effective on or after January 1, 2019. There was no effect from the adoption of these amendments.

Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures
The Group adopted Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures . These amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendments are effective on or after January 1, 2019. There was no effect from the adoption of these amendments.

Amendments to IAS 19 - Employee Benefits
The Group adopted Amendments to IAS 19 - Employee Benefits . These amendments require that when there is a change to a defined benefit plan (an amendment, curtailment or settlement) the company use the adopted assumptions from the remeasurement of a net defined benefit liability or asset to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments are effective on or after January 1, 2019. There was no effect from the adoption of these amendments.

Annual Improvements to IFRSs 2015-2017 Cycle
The Group adopted Annual Improvements to IFRSs 2015-2017 Cycle . The improvements have amended four standards with effective date of January 1, 2019: i) IFRS 3 - Business Combinations , in relation to obtaining control of a business which was previously accounted for as an interest in a joint operation; ii) IFRS 11 - Joint Arrangements , in relation to obtaining joint control of a business which was previously accounted for as a joint operation; iii) IAS 12 - Income Taxes , clarifying the treatment of taxes in relation to dividend payments; and iv) IAS 23 - Borrowing Costs , clarifying the treatment of borrowings which were previously capitalized when the related asset is ready for its intended use or sale. There was no effect from the adoption of these amendments.


F-11

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


New standards, amendments and interpretations not yet effective
The standards, amendments and interpretations issued by the International Accounting Standards Board (“IASB”) that will have mandatory application in 2020 or subsequent years are listed below:
In May 2017 the IASB issued IFRS 17 - Insurance Contracts which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued as well as guidance relating to reinsurance contracts held and investment contracts with discretionary participation features issued. IFRS 17 is effective on or after January 1, 2021 with early adoption allowed if IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments are also applied. The Group does not expect any impact from the adoption of this standard.

In October 2018 the IASB issued narrow scope amendments to IFRS 3 - Business Combinations to improve the definition
of a business. The amendments aim to help companies determine whether an acquisition made is of a business or a group of assets. The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. In addition to amending the definition of a business, supplementary guidance is provided. These amendments are effective on or after January 1, 2020. The Group does not expect any material impact from the adoption of these amendments.

In October 2018 the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors to clarify the definition of ‘material’, as well as how materiality should be applied by including in the definition guidance that is included elsewhere in IFRS standards. In addition, the explanations accompanying the definition have been improved and the amendments ensure that the definition of material is consistent across all IFRS standards. These amendments are effective on or after January 1, 2020. The Group does not expect any material impact from the adoption of these amendments.

In September 2019 the IASB issued amendments to IFRS 9 - Financial Instruments, IAS 39 - Financial Instruments: Recognition and Measurement and IFRS 7 - Financial Instruments: Disclosures , collectively the “Interest Rate Benchmark Reform”. These amendments modify certain hedge accounting requirements in order to provide relief from potential effects of the uncertainty caused by the interbank offered rates (IBOR) reform and require companies to provide additional information to investors about their hedging relationships that are directly affected by these uncertainties. These amendments are effective on or after January 1, 2020. The Group does not expect any material impact from the adoption of these amendments.

In January 2020 the IASB issued amendments to IAS 1 - Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current to clarify how to classify debt and other liabilities as current or non-current, and in particular how to classify liabilities with an uncertain settlement date and liabilities that may be settled by converting to equity. These amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the adoption of these amendments.

Review of the Conceptual Framework for Financial Reporting

In March 2018 the IASB revised the Conceptual Framework for Financial Reporting, effective immediately for the IASB and the IFRS Interpretations Committee when setting future standards, and effective for annual reporting periods on or after January 1, 2020 for companies that use the Conceptual Framework to develop accounting policies when no IFRS Standard applies to a particular transaction, with early application permitted. Key changes include (i) increasing the prominence of stewardship in the objective of financial reporting; (ii) reinstating prudence as a component of neutrality, defined as the exercise of caution when making judgements under conditions of uncertainty; (iii) defining a reporting entity; (iv) revising the definitions of an asset and a liability; (v) removing the probability threshold for recognition, and adding guidance on derecognition; (vi) adding guidance on the information provided by different measurement bases, and explaining factors to consider when selecting a measurement basis; and (vii) stating that profit or loss is the primary performance indicator and income and expenses in other comprehensive income should be recycled where the relevance or faithful representation of the financial statements would be enhanced. The Group does not expect a material impact from the adoption of the revised Conceptual Framework .


F-12

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Basis of consolidation
Subsidiaries
Subsidiaries are entities over which the Group has control. Control is achieved when the Group has power over the investee, when it is exposed to, or has rights to, variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries are consolidated on a line by line basis from the date on which the Group achieves control. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
The Group recognizes any non-controlling interests (“NCI”) in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s share of the recognized amounts of the acquiree’s identifiable net assets. Net profit or loss and each component of other comprehensive income/(loss) are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income/(loss) of subsidiaries is attributed to owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
All significant intra-group balances and transactions and any unrealized gains and losses arising from intra-group transactions are eliminated in preparing the Consolidated Financial Statements.
Subsidiaries are deconsolidated from the date when control ceases. When the Group ceases to have control over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts, derecognizes the carrying amount of non-controlling interests in the former subsidiary and recognizes the fair value of any consideration received from the transaction. Any retained interest in the former subsidiary is then remeasured to its fair value.

In 2016 the Group sold a majority stake in Ferrari Financial Services GmbH. From such date, the Group’s remaining interest has been remeasured at fair value and accounted for using the equity method.

Interests in associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but without having control or joint control over those policies. Associates are accounted for using the equity method of accounting from the date significant influence is obtained.
Under the equity method, the investments are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit/(loss) and other comprehensive income/(loss) of the investee. The Group’s share of the investee’s profit/(loss) is recognized in the consolidated income statement. Distributions received from an investee reduce the carrying amount of the investment. Post-acquisition movements in other comprehensive income/(loss) are recognized in other comprehensive income/(loss) with a corresponding adjustment to the carrying amount of the investment.
Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

When the Group’s share of the losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognizing its share of further losses. Additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group discontinues the use of the equity method from the date the investment ceases to be an associate or when it is classified as available-for-sale.

Interests in joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

F-13

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


When the Group undertakes its activities under joint operations, it recognizes in relation to its interest in the joint operation: (i) its assets, including its share of any assets held jointly, (ii) its liabilities, including its share of any liabilities incurred jointly, (iii) its revenue from the sale of its share of the output arising from the joint operation, (iv) its share of the revenue from the sale of the output by the joint operation, and (v) its expenses, including its share of any expenses incurred jointly.
Foreign currency transactions
The functional currency of the Group’s entities is the currency of their primary economic environment. In individual companies, transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign currency exchange rate prevailing at that date. Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements are recognized in the consolidated income statement.
Consolidation of foreign entities
All assets and liabilities of foreign consolidated companies with a functional currency other than the Euro are translated using the closing rates at the date of the consolidated statement of financial position. Income and expenses are translated into Euro at the average foreign currency exchange rate for the period. Translation differences resulting from the application of this method are classified as currency translation differences within other comprehensive income/(loss) until the disposal of the investment. Average foreign currency exchange rates for the period are used to translate the cash flows of foreign subsidiaries in preparing the consolidated statement of cash flows.
Goodwill, assets acquired and liabilities assumed arising from the acquisition of entities with a functional currency other than the Euro are recognized in the Consolidated Financial Statements in the functional currency and translated at the foreign currency exchange rate at the acquisition date. These balances are translated at subsequent balance sheet dates at the relevant foreign currency exchange rate.
The principal foreign currency exchange rates used to translate other currencies into Euro were as follows:
2019
2018
2017
Average
At December 31,
Average
At December 31,
Average
At December 31,
U.S. Dollar
1.1195

1.1234

1.1810

1.1450

1.1297

1.1993

Pound Sterling
0.8778

0.8508

0.8847

0.8945

0.8767

0.8872

Swiss Franc
1.1124

1.0854

1.1550

1.1269

1.1117

1.1702

Japanese Yen
122.0058

121.9400

130.3959

125.8500

126.7112

135.0100

Chinese Yuan
7.7355

7.8205

7.8081

7.8751

7.6290

7.8044

Australian Dollar
1.6109

1.5995

1.5797

1.6220

1.4732

1.5346

Canadian Dollar
1.4855

1.4598

1.5294

1.5605

1.4647

1.5039

Singapore Dollar
1.5273

1.5111

1.5926

1.5591

1.5588

1.6024

Hong Kong Dollar
8.7715

8.7473

9.2559

8.9675

8.8045

9.3720

Intangible assets
Goodwill
Goodwill is not amortized, but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

F-14

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Development costs
Development costs for car project production and related components, engines and systems are recognized as an asset if, and only if, both of the following conditions under IAS 38 - Intangible Assets are met: that development costs can be measured reliably and that the technical feasibility of the product, volumes and pricing support the view that the development expenditure will generate future economic benefits. Capitalized development costs include all direct and indirect costs that may be directly attributed to the development process.
Capitalized development costs are amortized on a straight-line basis from the start of production over the estimated lifecycle of the model or the useful life of the components (generally between four and eight years). All other research and development costs are expensed as incurred.
In particular the Group incurs significant research and development costs through the Formula 1 racing activities. These costs are considered fundamental to the development of the sports and street car models and prototypes. The model for the Formula 1 racing activities continually evolves and as such these costs are expensed as incurred.
Patents, concessions and licenses
Separately acquired patents, concessions and licenses are initially recognized at cost. Patents, concessions and licenses acquired in a business combination are initially recognized at fair value. Patents, concessions and licenses are amortized on a straight-line basis over their useful economic lives, which is generally between three and five years .
Other intangible assets
Other intangible assets mainly relate to the registration of trademarks and have been recognized in accordance with IAS 38 - Intangible Assets , where it is probable that the use of the asset will generate future economic benefits for the Group and where the cost of the asset can be measured reliably. Other intangible assets are measured at cost less any impairment losses and amortized on a straight-line basis over their estimated life, which is generally between three and five years.
Property, plant and equipment
Cost
Property, plant and equipment is initially recognized at cost which comprises the purchase price, any costs directly attributable to bringing the assets to the location and condition necessary to be capable of operating in the manner intended by management, capitalized borrowing costs and any initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Self-constructed assets are initially recognized at production cost. Subsequent expenditures and the cost of replacing parts of an asset are capitalized only if they increase the future economic benefits embodied in that asset. All other expenditures are expensed as incurred. When such replacement costs are capitalized, the carrying amount of the parts that are replaced is recognized as a loss in the period of replacement in the consolidated income statement.
Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:
Depreciation rates
Industrial buildings
3% - 20%
Plant, machinery and equipment
5% - 22%
Other assets
12% - 25%
Land is not depreciated.
If the asset being depreciated consists of separately identifiable components whose useful lives differ from that of the other parts making up the asset, depreciation is charged separately for each of its component parts through application of the ‘component approach’.

F-15

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Leases
With the adoption of IFRS 16, the Group recognizes a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use. Each lease payment is allocated between the principal liability and finance costs. Finance costs are charged to the income statement over the lease period using the effective interest rate method. The right-of-use asset is depreciated on a straight-line basis over the lease term.

Right-of-use assets are measured at cost comprising the following: (i) the amount of the initial measurement of lease liability; (ii) any lease payments made at or before the commencement date less any lease incentives received; (iii) any initial direct costs and, if applicable, (iv) restoration costs. Payments associated with short-term leases and leases of low-value assets are recognized as an expense in the income statement on a straight-line basis.
Lease liabilities are measured at the net present value of the following: (i) fixed lease payments, (ii) variable lease payments that are based on an index or a rate and, if applicable, (iii) amounts expected to be payable by the lessee under residual value guarantees, and (iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option. Lease liabilities do not include any non-lease components that may be included in the related contracts.

Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Some lease contracts contain variable payment terms that are linked to sales generated from Ferrari stores. Variable
lease payments that depend on sales are recognized in the income statement in the period in which the condition that triggers
those payments occurs.

Extension and termination options are included in a number of leases related to Ferrari stores, warehouses and machinery and equipment of the Group. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.
All other borrowing costs are expensed in net financial expenses if related to the Group’s industrial activities or cost of sales if related to the Group’s financial services activities in the consolidated income statement, as incurred.
Impairment of assets
The Group continuously monitors its operations to assess whether there is any indication that its intangible assets (including development costs) and its property, plant and equipment may be impaired. Goodwill is tested for impairment annually or more frequently, if there is an indication that an asset may be impaired.
If indications of impairment are present, the carrying amount of the asset is reduced to its recoverable amount, which is the higher of fair value less costs of disposal and its value in use. The recoverable amount is determined for the individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the asset is tested as part of the cash-generating unit (“CGU”) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. In assessing the value in use of an asset or CGU, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the recoverable amount is lower than the carrying amount.

F-16

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Where an impairment loss for assets other than goodwill, subsequently no longer exists or has decreased, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but not in excess of the carrying amount that would have been recorded had no impairment loss been recognized. The reversal of an impairment loss is recognized in the consolidated income statement immediately.
Financial instruments
Presentation
Current financial assets include trade receivables, receivables from financing activities, derivative financial instruments, other current financial assets and cash and cash equivalents.
Investments and other financial assets include investments accounted for using the equity method as well as other securities and non-current financial assets.
Financial liabilities include debt (which primarily includes bonds, notes, asset-backed financing (securitizations) and borrowings from banks), trade payables and other financial liabilities, which mainly include derivative financial instruments.
Measurement
Financial assets, other than investments accounted for using the equity method, and financial liabilities are measured in accordance with IFRS 9.
Except for investments accounted for using the equity method, the Group initially measures financial assets at fair value plus, in the case of financial assets not measured at fair value through profit or loss, transaction costs.
Equity instruments held by the Group are recognized at fair value through profit or loss. When market prices are not directly available, the fair value is measured using appropriate valuation techniques (e.g. discounted cash flow analysis based on market information available at the balance sheet date). As permitted by IFRS 9, equity investments for which there is no quoted market price in an active market and there is insufficient financial information in order to determine fair value may be measured at cost as an estimate of fair value.
Trade receivables and receivables from financing activities are originated in the ordinary course of business and held within a business model with the objective to hold the receivables in order to collect contractual cash flows that meet the ‘solely payments of principal and interest’ criterion under IFRS 9, therefore they are measured at amortized cost using the effective interest rate method. Receivables with maturities greater than one year are discounted to present value. Assessments are made regularly as to whether there is any objective evidence that a financial asset or group of financial assets may be impaired. Under IFRS 9, a forward-looking expected credit loss model must be applied when assessing impairment. In making impairment assessments, the Group applies the standard simplified approach to estimate the lifetime expected credit losses and considers its historical credit loss experience, adjusted for forward-looking factors specific to the nature of the Group’s receivables and economic environment. If any such evidence exists, an impairment loss is recognized within financial expenses.
Financial liabilities, with the exception of derivative financial instruments, are measured at amortized cost using the effective interest rate method.
Derivative financial instruments
Derivative financial instruments are used for economic hedging purposes only in order to reduce currency risks. Derivative financial instruments qualify for hedge accounting only when at the inception of the hedge there is formal designation and documentation of the hedging relationship, the hedge is expected to be highly effective, its effectiveness can be reliably measured and it is highly effective throughout the financial reporting periods for which it is designated.
All derivative financial instruments are measured at fair value.


F-17

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


When derivative financial instruments qualify for hedge accounting, the following accounting treatments apply:
Cash flow hedges - Where a derivative financial instrument is designated as a hedge of the exposure to variability in future cash flows of a recognized asset or liability or a highly probable forecasted transaction and could affect the consolidated income statement, the effective portion of any gain or loss on the derivative financial instrument is recognized directly in other comprehensive income/(loss). The cumulative gain or loss is reclassified from other comprehensive income/(loss) to the consolidated income statement at the same time as the economic effect arising from the hedged item affects the consolidated income statement. The gain or loss associated with a hedge or part of a hedge that has become ineffective is recognized in the consolidated income statement immediately within net financial income/expenses. When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss realized to the point of termination remains in other comprehensive income/(loss) and is recognized in the consolidated income statement at the same time as the underlying transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealized gain or loss held in other comprehensive income/(loss) is recognized in the consolidated income statement immediately.
The Group does not use fair value hedges or hedges of a net investment.
If hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognized immediately within financial expenses.
Transfers of financial assets
The Group sells certain of its receivables from financing activities under securitization programs. Securitization transactions involve the sale of a financial receivables portfolio to a special purpose vehicle, which in turn finances the purchase of such financial receivables by issuing asset-backed securities in the form of notes whose repayment of principal and interest depends on the cash flows generated by the related financial receivables. The receivables sold as part of securitization programs are still consolidated until collection from the customer.
The Group may also sell certain of its trade receivables through factoring transactions without recourse. The Group derecognizes the financial assets when, and only when, the contractual rights and risks to the cash flows arising from the related financial assets are no longer held or the Group has transferred the financial assets. In the case of a transfer of financial assets, if the Group transfers substantially all the risks and rewards of ownership of the financial assets, it derecognizes such assets and separately recognizes as assets or liabilities any rights and obligations created or retained in the transfer. On derecognition of financial assets, the difference between the carrying amount of the assets and the consideration received or receivable for the transfer of the assets is recognized within cost of sales in the consolidated income statement.
Trade receivables
Trade receivables are amounts due from clients for goods sold or services provided in the ordinary course of business. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method, less any provision for allowances.
Inventories
Inventories of raw materials, semi-finished products and finished goods are stated at the lower of cost and net realizable value, cost being determined on a first-in first-out (FIFO) basis. The measurement of inventories includes the direct costs of materials, labor and indirect costs (variable and fixed). Purchase costs include ancillary costs. Prototypes are recognized at their estimated realizable value, if lower than production cost. Provision is made for obsolete and slow-moving raw materials, finished goods, spare parts and other supplies based on their expected future use and realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs for sale and distribution.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

F-18

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Employee benefits
Defined contribution plans
Costs arising from defined contribution plans are expensed as incurred.
Defined benefit plans
The Group’s net obligations are determined separately for each plan by estimating the present value of future benefits that employees have earned in the current and prior periods, and deducting the fair value of any plan assets. The present value of the defined benefit obligation is measured using actuarial techniques and actuarial assumptions that are unbiased and mutually compatible and attributes benefits to periods in which the obligation to provide post-employment benefits arise by using the Projected Unit Credit Method.
The components of the defined benefit cost are recognized as follows:
•
the service costs are recognized in the consolidated income statement by function and presented in the relevant line items (cost of sales, selling, general and administrative costs, research and development costs, etc.);
•
the net interest on the defined benefit liability is recognized in the consolidated income statement as net financial income /(expenses), and is determined by multiplying the net liability/(asset) by the discount rate used to discount obligations taking into account the effect of contributions and benefit payments made during the year; and
•
the remeasurement components of the net obligations, which comprise actuarial gains and losses and any change in the effect of the asset ceiling are recognized immediately in other comprehensive income/(loss). These remeasurement components are not reclassified in the consolidated income statement in a subsequent period.
Other long-term employee benefits
The Group’s obligations represent the present value of future benefits that employees have earned in return for their service during the current and prior periods. Remeasurement components on other long-term employee benefits are recognized in the consolidated income statement in the period in which they arise.
Share-based compensation
The Group has implemented equity incentive plans that provide for the granting of share-based compensation to the Chairman, the Chief Executive Officer, all other members of the Senior Management Team (“SMT”) and other key employees of the Group. The equity incentive plans are accounted for in accordance with IFRS 2 - Share-based Payment , which requires the Company to recognize share-based compensation expense based on fair value of awards granted. Compensation expense for the equity-settled awards containing market performance conditions is measured at the grant date fair value of the award using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of the Company’s common stock, the dividend yield, interest rates and a correlation coefficient between the common stock and the relevant market index. The fair value of the awards which are conditional only on a recipient’s continued service to the Company is measured using the share price at the grant date adjusted for the present value of future distributions which employees will not receive during the vesting period.

Share-based compensation expense relating to the equity incentive plans is recognized over the service period within selling, general and administrative costs or cost of sales in the consolidated income statement depending on the function of the employee, with an offsetting increase to equity.
Provisions
Provisions are recognized when the Group has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

F-19

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Warranty and recall campaigns provision
All cars are sold with warranty coverage. The warranty coverage generally applies to defects that may become apparent within a certain period from the purchase of the car.
The warranty provision is recognized at the time of the sale of the car, based on the present value of management’s estimate of the expected cost to fulfill the obligations over the contractual warranty period. Estimates are principally based on the Group’s historical claims or costs experience and the cost of parts and services to be incurred in the activities. The costs related to these provisions are recognized within cost of sales at the time when they are probable and reasonably estimable.
See “Use of estimates” below for further details.
Deferred income

Deferred income relates to amounts received by the Group under various agreements, which are reliant on the future performance of a service or other act of the Group. Deferred income is recognized as net revenues when the Group has fulfilled its obligations under the terms of the various agreements.
Range models (models belonging to the Ferrari product portfolio, excluding special series, Icona, limited edition and one-off ( fuori serie) models) are sold with a scheduled maintenance program to ensure that the cars are maintained to the highest standards to meet the Group’s strict requirements for performance and safety. Amounts attributable to the maintenance program are not recognized as income immediately, but are deferred over the maintenance program term. The amount of the deferred income related to this program, is based on the estimated fair value of the service to be provided.
Advances
Advances relate to amounts received from or billed to customers in advance of having delivered the related cars or provided the related services.
Revenue recognition
Revenue is recognized when control over a product or service is transferred to a customer. Revenue is measured at the transaction price which is based on the amount of consideration that the Group expects to receive in exchange for transferring the promised goods or services to the customer and excludes any sales incentives as well as taxes collected from customers that are remitted to government authorities. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. The Group enters into contracts that may include both products and services, which are generally capable of being distinct and accounted for as separate performance obligations.
The Group generates revenue from the sale of cars, spare parts and engines as well as from sponsorship, commercial and brand activities. The Group accounts for a contract with a customer when there is a legally enforceable contract between the Group and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Payments from customers are typically due within 30 and 40 days of invoicing.
The Group does not recognize any assets associated with the incremental costs of obtaining a contract with a customer that are expected to be recovered. The majority of revenue is recognized at a point-in-time or over a period of one year or less, and the Group applies the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise be recognized is one year or less.
Cars, spare parts and engines
The sales of cars, spare parts and engines have multiple performance obligations that include products, services, or a combination of products and services as contracts may include maintenance programs and extended warranties that are separately priced or not separately priced. Contracts may also include variable consideration for discounts such as sales incentives and performance based bonuses and product returns. The cost of incentives is estimated at the inception of a contract at the expected amount that will ultimately be paid and is recognized as a reduction to revenue at the time of the sale. Revenues recognized are limited to the amount of consideration the Group expects to receive. The Group allocates the transaction price to the performance

F-20

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


obligations based on the stand alone selling prices (SSP) for each obligation. When the SSP does not exist, the Group estimates the SSP based on the adjusted market approach.
Revenues for the sale of cars, spare parts and engines are recognized at a point in time when control of the cars, spare parts or engines is transferred to the customer based on shipping terms, which generally corresponds to the date when the cars, spare parts and engines are released to the carrier responsible for transportation to dealers or Maserati. Revenues relating to the maintenance program or extended warranty are recognized over time as the maintenance program or extended warranty is provided. Revenues from the supply of engines and related services to other Formula 1 racing teams are recognized over time on a time and materials basis when the services are provided.
Management has exercised judgment in determining performance obligations, variable consideration, allocation of transaction price and the timing of revenue recognition.
Sponsorship, commercial and brand activities
Revenues from sponsorship agreements are generally recognized ratably over the contract term as the customer benefits from the service throughout the service period. For sponsorship agreements that contain variable consideration based on performance of the racing team, the related revenues are estimated and recognized over the relevant period to the extent that it is highly probable that a significant reversal in the amount of the cumulative revenue recognized will not occur, which is typically when it is considered highly probable that the related conditions associated with the variable consideration will be achieved.
Revenues from commercial activities primarily relate to the revenues from participating in the Formula 1 World Championship. The revenues attributable to each racing team are governed by a specific agreement and depend upon, among other factors, the prior year ranking of each of the racing teams. Revenues of the commercial activities are recognized ratably over the contract term.
Revenues from brand licensing agreements where the customer has a right to access the Group’s brands or the contract includes minimum guaranteed payments are recognized on a straight-line basis over the contract term. Licensing revenues in excess of the minimum guaranteed payments are recognized when the related conditions are satisfied. Revenues from sales-based licensing agreements are recognized when the sales occur.
Management has exercised judgment in determining variable consideration.
Other revenues
Interest income generated by our financial service activities from the provision of client and dealer financing is reported within revenues using the effective interest rate method and not within net financial income/expenses.
Cost of sales
Cost of sales comprises expenses incurred in the manufacturing and distribution of cars and parts, including the engines rented to other Formula 1 racing teams, of which, cost of materials, components and labor costs are the most significant portion. The remaining costs principally include depreciation, amortization, insurance and transportation costs. Cost of sales also includes warranty and product-related costs, which are estimated and recorded at the time of sale of the car.
Expenses which are directly attributable to the financial services companies, including the interest expenses related to their financing as a whole and provisions for risks and write-downs of assets, are also reported in cost of sales.
Other expenses and other income
Other expenses consist of miscellaneous costs which cannot be allocated to specific functional areas, such as indirect taxes, accruals for provisions not attributable to cost of sales or selling, general and administrative costs, and other miscellaneous expenses.

F-21

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Other income consists of miscellaneous income that is not directly attributable to the sale of goods or services, such as gains on the disposal of property plant and equipment, the release of certain provisions originally recognized as other expenses, rental income and other miscellaneous income.
Taxes
Income taxes include all taxes based upon the taxable profits of the Group. Current and deferred taxes are recognized as income or expense and are included in the consolidated income statement for the period, except tax arising from (i) a transaction or event which is recognized, in the same or a different period, either in other comprehensive income/(loss) or directly in equity, or (ii) a business combination.
Deferred taxes are accounted using the full liability method. Deferred tax liabilities are recognized for all taxable temporary differences between the carrying amounts of assets or liabilities and their tax base, except to the extent that the deferred tax liabilities arise from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized, unless the deferred tax assets arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax assets and liabilities are measured at the substantively enacted tax rates in the respective jurisdictions in which the Group operates that are expected to apply to the period when the asset is realized or liability is settled. Any remeasurements to deferred tax assets and liabilities as a result of changes in substantially enacted tax rates are recognized in the income statement.
The recoverability of deferred tax assets is dependent on the Group’s ability to generate sufficient future taxable income in the period in which it is assumed that the deductible temporary differences reverse and tax losses carried forward can be utilized. In making this assessment, the Group considers future taxable income arising on the most recent budgets and plans, prepared by using the same criteria described for testing the impairment of assets and goodwill, moreover, it estimates the impact of the reversal of taxable temporary differences on earnings and it also considers the period over which these assets could be recovered. The carrying amount of deferred tax assets is reduced to the extent that it is not probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax assets to be utilized.
The Group recognizes deferred tax liabilities associated with the existence of a subsidiary’s undistributed profits, except when it is able to control the timing of the reversal of the temporary difference and it is probable that this temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets associated with the deductible temporary differences on investments in subsidiaries only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets relating to the carry-forward of unused tax losses and tax credits, as well as those arising from deductible temporary differences, are recognized to the extent that it is probable that future profits will be available against which they can be utilized.
Current income taxes and deferred taxes are offset when they relate to the same taxation authority and there is a legally enforceable right of offset.
Italian Regional Income Tax (“IRAP”) is recognized within income tax expense. IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, and in particular before the cost of fixed-term employees, credit losses and any interest included in lease payments. IRAP is applied on the tax base at 3.9 percent for the years ended December 31, 2019 , 2018 and 2017 .
Other taxes not based on income, such as property taxes and capital taxes, are included in other expenses, net.
With the adoption of IFRIC 23 on January 1, 2019, the Group reviewed its previously designed model to account for tax uncertainties and assessed that it is consistent with the more specific IFRIC 23 requirements.

F-22

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Dividends
Dividends payable by the Group are reported as a change in equity in the period in which they are approved by shareholders or the Board of Directors as applicable under local rules and regulations.
Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand Euro unless otherwise stated.


F-23

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


3. SCOPE OF CONSOLIDATION
Ferrari N.V. is the parent company of the Group and it holds, directly and indirectly, interests in the Group’s main operating companies. The Group’s scope of consolidation at December 31, 2019 and 2018 was as follows:
At December 31, 2019
At December 31, 2018
Name
Country
Nature of business
Shares held by the Group
Shares held by NCI
Shares held by the Group
Shares held by NCI
Directly held interests
Ferrari S.p.A.
Italy
Manufacturing
100
%
—
%
100
%
—
%
Indirectly held through Ferrari S.p.A.
Ferrari North America Inc.
USA
Importer and distributor
100
%
—
%
100
%
—
%
Ferrari Japan KK
Japan
Importer and distributor
100
%
—
%
100
%
—
%
Ferrari Australasia Pty Limited
Australia
Importer and distributor
100
%
—
%
100
%
—
%
Ferrari (HK) Limited
Hong Kong
Importer and distributor
100
%
—
%
100
%
—
%
Ferrari International Cars Trading (Shanghai) Co. L.t.d.
China
Importer and distributor
80
%
20
%
80
%
20
%
Ferrari Far East Pte Limited
Singapore
Service company
100
%
—
%
100
%
—
%
Ferrari Management Consulting (Shanghai) Co. L.t.d.
China
Service company
100
%
—
%
100
%
—
%
Ferrari South West Europe S.a.r.l.
France
Service company
100
%
—
%
100
%
—
%
Ferrari Central Europe GmbH (1)
Germany
Service company
100
%
—
%
100
%
—
%
G.S.A. S.A.
Switzerland
Service company
100
%
—
%
100
%
—
%
Mugello Circuit S.p.A.
Italy
Racetrack management
100
%
—
%
100
%
—
%
Ferrari Financial Services Inc.
USA
Financial services
100
%
—
%
100
%
—
%
Indirectly held through other Group entities
Ferrari Auto Securitization Transaction, LLC (2)
USA
Financial services
100
%
—
%
100
%
—
%
Ferrari Auto Securitization Transaction - Lease, LLC (2)
USA
Financial services
100
%
—
%
100
%
—
%
Ferrari Auto Securitization Transaction - Select, LLC (2)
USA
Financial services
100
%
—
%
100
%
—
%
Ferrari Financial Services Titling Trust (2)
USA
Financial services
100
%
—
%
100
%
—
%
410, Park Display Inc. (3)
USA
Retail
100
%
—
%
100
%
—
%
_____________________________
(1)
Changed its name from Ferrari Central East Europe GmbH to Ferrari Central Europe GmbH, effective December 2, 2019.
(2)
Shareholding held by Ferrari Financial Services Inc.
(3)
Shareholding held by Ferrari North America Inc.



F-24

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Non-controlling interests
The non-controlling interests at December 31, 2019 and 2018 and the net profit attributable to non-controlling interests for the years ended December 31, 2019 , 2018 and 2017 relate to Ferrari International Cars Trading (Shanghai) Co. L.t.d. (“FICTS”), in which the Group holds an 80 percent interest.
At December 31,
2019
2018
(€ thousand)
Equity attributable to non-controlling interests
5,998

5,117

For the years ended December 31,
2019
2018
2017
(€ thousand)
Net profit attributable to non-controlling interests
2,890

1,949

2,003

The non-controlling interests in FICTS are not considered to be significant to the Group for the relevant periods.
Restrictions
The Group may be subject to restrictions which limit its ability to use cash in relation to its interest in FICTS. In particular, cash held in China is subject to certain repatriation restrictions and may only be repatriated as dividends. The Group does not believe that such transfer restrictions have any adverse impacts on its ability to meet liquidity requirements. Cash held in China at December 31, 2019 amounted to €115,182 thousand ( €77,790 thousand at December 31, 2018 ).
Cash collected from the settlement of receivables or lines of credit pledged as collateral is subject to certain restrictions regarding its use and is principally applied to repay principal and interest of the related funding. Such cash amounted to €27,524 thousand at December 31, 2019 ( €26,497 thousand at December 31, 2018 ).

Segment reporting
The Group has determined that it has one operating and one reportable segment based on the information reviewed by its CODM in making decisions regarding the allocation of resources and to assess performance.

Use of estimates
The Consolidated Financial Statements are prepared in accordance with IFRS which require the use of estimates, judgments and assumptions that affect the carrying amount of assets and liabilities, the disclosure of contingent assets and liabilities and the amounts of income and expenses recognized. The estimates and associated assumptions are based on elements that are known when the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant.
The estimates and underlying assumptions are reviewed periodically and continuously by the Group. If the items subject to estimates do not perform as assumed, then the actual results could differ from the estimates, which would require adjustment accordingly. The effects of any changes in estimate are recognized in the consolidated income statement in the period in which the adjustment is made, or prospectively in future periods.
The items requiring estimates for which there is a risk that a material difference may arise in respect of the carrying amounts of assets and liabilities in the future are discussed below.

F-25

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Recoverability of non-current assets with definite useful lives
Non-current assets with definite useful lives include property, plant and equipment and intangible assets. Intangible assets with definite useful lives mainly consist of capitalized development costs.
The Group periodically reviews the carrying amount of non-current assets with definite useful lives when events and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing the carrying amount and the recoverable amount of the cash-generating unit (“CGU”). The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.
For the period covered by these Consolidated Financial Statements, the Group has not recognized any impairment charges for non-current assets with definite useful lives.
Recoverability of goodwill
In accordance with IAS 36 - Impairment of Assets , goodwill is not amortized and is tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
As the Group is composed of one operating segment, goodwill is tested at the Group level, which represents the lowest level within the Group at which goodwill is monitored for internal management purposes in accordance with IAS 36. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill and capitalized development costs) and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.
For the period covered by these Consolidated Financial Statements, the Group has not recognized any impairment charges for goodwill.
Development costs
Development costs are capitalized if the conditions under IAS 38 - Intangible Assets have been met. The starting point for capitalization is based upon the technological and commercial feasibility of the project, which is usually when a product development project has reached a defined milestone according to the Group’s established product development model. Feasibility is based on management’s judgment which is formed on the basis of estimated future cash flows. Capitalization ceases and amortization of capitalized development costs begins on start of production of the relevant project.
The amortization of development costs requires management to estimate the lifecycle of the related model. Any changes in such assumptions would impact the amortization charge recorded and the carrying amount of capitalized development costs. The periodic amortization charge is derived after determining the expected lifecycle of the related model and, if applicable any expected residual value at the end of its life. Increasing an asset’s expected lifecycle or its residual value would result in a reduced amortization charge in the consolidated income statement.
The useful lives and residual values of the Group’s models are determined by management at the time of capitalization and reviewed annually for appropriateness and recoverability. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life such as changes in technology. Historically changes in useful lives and residual values have not resulted in material changes to the Group’s amortization charge or estimated recoverability of the related assets.

F-26

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Product warranty liabilities
The Group establishes reserves for product warranties at the time the sale is recognized. The Group issues various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term, which is generally defined by the legislation in the country where the car is sold. The reserve for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each car line and each model year of that car line, as well as historical claims experience for the Group’s cars. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
The Group periodically initiates voluntary service actions to address various client satisfaction, safety and emissions issues related to cars sold. Included in the reserve is the estimated cost of these services and recall actions. The estimated future costs of these actions are based primarily on historical claims experience for the Group’s cars and the cost of parts and services to be incurred in the specified activities, and are recognized at the time when they are probable and reasonably estimable. Estimates of the future costs of these actions are inevitably imprecise due to several uncertainties, including the number of cars affected by a service or recall action. It is reasonably possible that the ultimate cost of these service and recall actions may require the Group to make expenditures in excess of (or less than) established reserves over an extended period of time. The estimate of warranty and additional service obligations is periodically reviewed during the year.
In addition, the Group makes provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict, and have the potential to vary significantly in amount. Costs associated with these provisions are recorded in the consolidated income statement and any subsequent adjustments are recorded in the period in which the adjustment is determined.
Share-based compensation

The Group accounts for its equity incentive plan in accordance with IFRS 2 - Share-based Payment, which requires the recognition of share-based compensation expense based on the fair value of the awards granted. Share-based compensation for equity-settled awards containing market performance conditions is measured at the grant date of the awards using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of our common stock, the dividend yield, interest rates and the correlation coefficient between our common stock and the relevant market index. The probability that the Group will achieve a certain level of Total Shareholder Return performance compared to the defined peer group is also considered. As a result, at the grant date management is required to make key assumptions and estimates regarding conditions that will occur in the future, which inherently involves uncertainty. Therefore, the amount of share-based compensation recognized has been affected by the significant assumptions and estimates used.

Other contingent liabilities
The Group makes provisions in connection with pending or threatened disputes or legal proceedings when it is considered probable that there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes possible but the amount cannot be estimated, the matter is disclosed in the notes to the Consolidated Financial Statements. The Group is the subject of legal and tax proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the outflow of funds that could result from such disputes with any certainty. Moreover, the cases and claims against the Group often derive from complex legal issues which are subject to a differing degree of uncertainty, including the facts and circumstances of each particular case and the manner in which applicable law is likely to be interpreted and applied to such fact and circumstances, and the jurisdiction and the different laws involved. The Group monitors the status of pending legal proceedings and consults with experts on legal and tax matters on a regular basis. It is therefore possible that the provisions for the Group’s legal proceedings and litigation may vary as the result of future developments in pending matters.

F-27

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Litigation
Various legal proceedings, claims and governmental investigations are pending against the Group on a wide range of topics, including car safety, emissions and fuel economy, early warning reporting, dealer, supplier and other contractual relationships, intellectual property rights and product warranties matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seatbelts, brakes, transmissions, engines and fuel systems) in various car models or allege general design defects relating to car handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases could include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require the Group to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and a reliable estimate can be made. Since these accruals represent estimates, it is reasonably possible that the resolution of some of these matters could require the Group to make payments in excess of the amounts accrued. It is also reasonably possible that the resolution of some of the matters for which accruals could not be made may require the Group to make payments in an amount or range of amounts that could not be reasonably estimated.
The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on the Group’s operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, it is believed that any resulting adjustment would not materially affect the consolidated financial position of the Group.


F-28

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018



4. NET REVENUES
Net revenues are as follows:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Cars and spare parts
2,925,721

2,535,245

2,455,955

Engines
198,308

284,546

373,313

Sponsorship, commercial and brand
538,238

505,701

494,082

Other
104,348

94,829

93,540

Total net revenues
3,766,615

3,420,321

3,416,890

Other net revenues primarily relate to financial services activities and management of the Mugello racetrack.

5. COST OF SALES
Cost of sales in 2019 , 2018 and 2017 amounted to €1,805,310 thousand , €1,622,905 thousand and €1,650,860 thousand , respectively, consisting mainly of the cost of materials, components and labor expenses related to the manufacturing and distribution of cars and spare parts, engines sold to Maserati and engines rented to other Formula 1 racing teams. The remaining costs principally includes depreciation, insurance and transportation costs. Cost of sales also includes warranty and product-related costs, which are estimated and recorded at the time of shipment.
Interest and other financial expenses from financial services companies included within cost of sales in 2019 , 2018 and 2017 amounted to €45,083 thousand , €33,828 thousand and €30,945 thousand , respectively.
Cost of sales in 2018 included €1,451 thousand related to a partial release of the provision for charges to Takata airbag inflator recalls. See Note 23 “Provisions” for additional details.

6. SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling costs in 2019 , 2018 and 2017 amounted to €173,512 thousand , €167,819 thousand and €173,484 thousand , respectively, consisting mainly of costs for sales personnel, marketing and events, and retail stores. Marketing and events expenses consist primarily of costs in connection with trade and auto shows, media and client events for the launch of new models, as well as sponsorship and indirect marketing costs incurred through the Formula 1 racing team, Scuderia Ferrari.
General and administrative costs in 2019 , 2018 and 2017 amounted to €169,667 thousand , €159,522 thousand and €155,581 thousand , respectively, consisting mainly of administration and other general expenses that are not directly attributable to manufacturing, sales or research and development activities.


F-29

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


7. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are as follows:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Research and development costs expensed during the year
559,582

527,847

556,617

Amortization of capitalized development costs
139,629

115,191

100,502

Total research and development costs
699,211

643,038

657,119

Research and development costs expensed during the period primarily relate to Formula 1 activities and research and development activities to support the innovation of our product range and components, and in particular, in relation to hybrid and electric technology. Research and development costs also include amortization of capitalized development costs.

8. RESULT FROM INVESTMENTS
Result from investments of €3,522 thousand , €2,665 thousand and €2,437 thousand in 2019 , 2018 and 2017 , respectively, related to the Group’s proportionate share of the net profit of Ferrari Financial Services GmbH ( “ FFS GmbH ” ) for the relevant year.



F-30

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


9. NET FINANCIAL EXPENSES
The following table sets out details of financial income and expenses, including the amounts reported in the consolidated income statement within the net financial expenses line item, as well as interest income from financial services activities, recognized under net revenues, and interest expenses and other financial charges from financial services activities, recognized under cost of sales.
For the years ended December 31,
2019
2018
2017
Financial income:
(€ thousand)
Interest income from bank deposits
1,690

1,445

1,153

Other interest income and financial income
4,116

677

5,284

Interest income and other financial income
5,806

2,122

6,437

Finance income from financial services activities
66,386

52,702

50,254

Total financial income
72,192

54,824

56,691

Total financial income relating to:
Industrial activities (A)
5,806

2,122

6,437

Financial services activities (reported in net revenues)
66,386

52,702

50,254

Financial expenses:






Capitalized borrowing costs
2,671

2,884

1,578

Other interest cost and financial expenses
(2,427
)
(1,046
)
(3,775
)
Interest expenses and other financial expenses
244

1,838

(2,197
)
Interest expenses from banks
(27,432
)
(21,486
)
(23,057
)
Interest and other finance costs on bonds and notes
(20,703
)
(12,386
)
(9,231
)
Write-downs of financial receivables
(4,739
)
(3,326
)
(3,530
)
Other financial expenses
(13,949
)
(8,494
)
(12,008
)
Total financial expenses
(66,579
)
(43,854
)
(50,023
)
Net expenses from derivative financial instruments and foreign currency exchange rate differences
(26,392
)
(15,659
)
(16,619
)
Total financial expenses and net expenses from derivative financial instruments and foreign currency exchange rate differences
(92,971
)
(59,513
)
(66,642
)







Total financial expenses and net expenses from derivative financial instruments and foreign currency exchange rate differences relating to:






Industrial activities (B)
(47,888
)
(25,685
)
(35,697
)
Financial services activities (reported in cost of sales)
(45,083
)
(33,828
)
(30,945
)
Net financial expenses relating to industrial activities (A+B)
(42,082
)
(23,563
)
(29,260
)
Interest and other finance costs on bonds and notes for the year ended December 31, 2019 includes costs of €8,142 thousand for the partial repurchase of bonds following a cash tender offer in July (in particular the repurchase price and premium incurred, as well as previously unamortized issuance costs).


F-31

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


10. INCOME TAXES
Income tax expense is as follows:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Current tax expense
137,303

95,076

201,274

Deferred tax expense
32,145

66,325

8,718

Taxes relating to prior periods
7,208

(145,084
)
(1,232
)
Total income tax expense
176,656

16,317

208,760

The Group’s entities participate in a group Italian tax consolidation under Ferrari N.V..
In September 2018, the Group signed an agreement with the Italian Revenue Agency in relation to the Patent Box tax regime, which provides tax benefits for companies that generate income through the use, both direct and indirect, of copyrights, patents, trademarks, designs and know-how. The agreement relates to the five-year period from 2015 to 2019. The Group applied the Patent Box tax regime for the calculation of income taxes starting in the third quarter of 2018. The Patent Box tax benefit relating to the years 2015 to 2017 was recorded within taxes relating to prior periods in 2018 and amounted to €141 million .
The table below provides a reconciliation between actual income tax expense and the theoretical income tax expense, calculated on the basis of the applicable corporate tax rate in effect in Italy, which was 24.0 percent for each of the years ended December 31, 2019 , 2018 and 2017 .
For the years ended December 31,
2019
2018
2017
(€ thousand)
Theoretical income tax expense, net of IRAP
210,088

192,706

179,077

Tax effect on:
Permanent and other differences
(76,187
)
(58,877
)
(7,061
)
Effect of changes in tax rate and tax regulations
733

—

4,862

Differences between foreign tax rates and the theoretical Italian tax rate and tax holidays
3,457

1,216

2,344

Taxes relating to prior years
7,208

(145,084
)
(1,232
)
Withholding tax on earnings
3,360

1,514

2,420

Total income tax expense/(benefit), net of IRAP
148,659

(8,525
)
180,410

Effective tax rate, net of IRAP
17.0
%
(1.1
)%
24.2
%
IRAP (current and deferred)
27,997

24,842

28,350

Total income tax expense
176,656

16,317

208,760

In order to facilitate the understanding of the tax rate reconciliation presented above, income tax expense has been presented net of Italian Regional Income Tax (“IRAP”). IRAP is calculated on a measure of income defined by the Italian Civil Code as the difference between operating revenues and costs, before financial income and expense, the cost of fixed-term employees, credit losses and any interest included in lease payments. The applicable IRAP rate was 3.9 percent for each of the years ended December 31, 2019 , 2018 and 2017 .
The increase in the effective tax rate net of IRAP from (1.1) percent in 2018 to 17.0 percent in 2019 was primarily attributable to the Group’s application of the Patent Box tax regime starting in the third quarter of 2018, which resulted in the recognition in 2018 of the positive impact of the Patent Box relating to the years 2015 to 2017. The Patent Box benefit relating to the years 2015 to 2017 is included within “taxes relating to prior years” in 2018 and the Patent Box benefit relating to 2019 and 2018 is included within “permanent and other differences” for the respective years in the tax rate reconciliation above.

F-32

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018



Taxes relating to prior years recognized in 2019 are primarily attributable to agreements reached with the Italian Revenue Agency for the settlement of previous years’ claims.

The analysis of deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 , is as follows:
At December 31,
2019
2018
(€ thousand)
Deferred tax assets:
To be recovered after 12 months
16,445

27,297

To be recovered within 12 months
57,238

33,447

73,683

60,744

Deferred tax liabilities:
To be realized after 12 months
(77,334
)
(14,497
)
To be realized within 12 months
(4,874
)
(24,645
)
(82,208
)
(39,142
)
Net deferred tax (liabilities)/assets
(8,525
)
21,602


F-33

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The movements in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:
At December 31, 2018
Recognized in consolidated income statement
Charged to equity
Translation
differences
and other
changes
At December 31, 2019
(€ thousand)
Deferred tax assets arising on:
Provisions
108,147

(8,181
)
—

332

100,298

Deferred income
51,578

2,265

—

—

53,843

Employee benefits
2,474

—

456

—

2,930

Cash flow hedge reserve
1,176

—

610

—

1,786

Foreign currency exchange rate differences
859

578

—

—

1,437

Inventory obsolescence
38,275

13,626

—

71

51,972

Allowances for doubtful accounts
4,301

1,104

—

2

5,407

Depreciation
17,241

321

—

2

17,564

Other
11,147

5,858



690

17,695

Total deferred tax assets
235,198

15,571

1,066

1,097

252,932

Deferred tax liabilities arising on:
Depreciation
(9,303
)
572

—

(150
)
(8,881
)
Capitalization of development costs
(171,707
)
(53,144
)
—

—

(224,851
)
Employee benefits
(670
)
(80
)
—

—

(750
)
Exchange rate differences
(149
)
(251
)
—

1

(399
)
Cash flow hedge reserve
(1
)
1

—

—

—

Tax on undistributed earnings
(16,371
)
2,388

—

—

(13,983
)
Other
(15,395
)
2,798

—

4

(12,593
)
Total deferred tax liabilities
(213,596
)
(47,716
)
—

(145
)
(261,457
)
Total net deferred tax assets/(liabilities)
21,602

(32,145
)
1,066

952

(8,525
)


F-34

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


At December 31, 2017
Recognized in consolidated income statement
Charged
to equity
Translation
differences
and other
changes
At December 31, 2018
(€ thousand)
Deferred tax assets arising on:
Provisions
102,243

5,249

—

655

108,147

Deferred income
46,198

3,131

—

2,249

51,578

Employee benefits
2,562

—

(88
)
—

2,474

Cash flow hedge reserve
(2,432
)
—

3,608

—

1,176

Foreign currency exchange rate differences
740

119

—

—

859

Inventory obsolescence
37,615

521

—

139

38,275

Allowances for doubtful accounts
3,999

303

—

(1
)
4,301

Depreciation
16,570

399

—

272

17,241

Other
12,383

1,876

—

(3,112
)
11,147

Total deferred tax assets
219,878

11,598

3,520

202

235,198

Deferred tax liabilities arising on:
Depreciation
(8,930
)
(24
)
—

(349
)
(9,303
)
Capitalization of development costs
(114,775
)
(56,932
)
—

—

(171,707
)
Employee benefits
(1,868
)
(161
)
—

1,359

(670
)
Exchange rate differences
(647
)
501

—

(3
)
(149
)
Cash flow hedge reserve
(1
)
—

—

—

(1
)
Tax on undistributed earnings
—

(16,371
)
—

—

(16,371
)
Other
(10,652
)

(4,936
)
—

193


(15,395
)
Total deferred tax liabilities
(136,873
)
(77,923
)
—

1,200

(213,596
)
Deferred tax assets arising on tax loss carry-forward
109

—

—

(109
)
—

Total net deferred tax assets
83,114

(66,325
)
3,520

1,293

21,602

The decision to recognize deferred tax assets is made for each company in the Group by assessing whether the conditions exist for the future recoverability of such assets by taking into account the basis of the most recent forecasts from budgets and business plans.
Deferred taxes on the undistributed earnings of subsidiaries have not been recognized, except in cases where it is probable the distribution will occur in the foreseeable future. For additional information, at December 31, 2019, the aggregate amount of temporary differences related to remaining distributable earnings of the Group’s subsidiaries where deferred tax liabilities have not been recognized amounted to €151,990 thousand .

11. OTHER INFORMATION BY NATURE
Personnel costs in 2019 , 2018 and 2017 amounted to €385,182 thousand , €323,936 thousand and €313,471 thousand , respectively. These amounts include costs that were capitalized mainly in connection with product development activities.
In 2019 , 2018 and 2017 the Group had an average number of employees of 4,164 , 3,651 and 3,336 , respectively.
Depreciation amounted to €191,482 thousand , €156,384 thousand and €143,484 thousand for the years ended December 31, 2019 , 2018 and 2017 , respectively.
Amortization amounted to €160,464 thousand , €132,364 thousand and €117,122 thousand for the years ended December 31, 2019 , 2018 and 2017 , respectively.


F-35

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


12. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of common shares in issue. The following table provides the amounts used in the calculation of basic earnings per share for the years ended December 31, 2019 , 2018 and 2017 :
For the years ended December 31,
2019
2018
2017
Profit attributable to owners of the Company
€ thousand
695,818

784,678

535,393

Weighted average number of common shares for basic earnings per common share
thousand
186,767

188,606

188,951

Basic earnings per common share
€
3.73

4.16

2.83

Diluted earnings per share
The weighted average number of common shares for diluted earnings per share was increased to take into consideration the theoretical effect of (i) the potential common shares that would have been issued under the equity incentive plans for the years ended December 31, 2019, 2018 and 2017 (assuming 100 percent of the related awards vested), and (ii) the potential common shares that would have been issued under the Non-Executive Directors’ compensation agreement for the year ended December 31, 2017. See Note 21 for additional details relating to the equity incentive plan.
The following table provides the amounts used in the calculation of diluted earnings per share for the years ended December 31, 2019 , 2018 and 2017 :
For the years ended December 31,
2019
2018
2017
Profit attributable to owners of the Company
€ thousand
695,818

784,678

535,393

Weighted average number of common shares (1) for diluted earnings per common share
thousand
187,535

189,394

189,759

Diluted earnings per common share
€
3.71

4.14

2.82


13. GOODWILL
At December 31, 2019 and 2018 goodwill amounted to €785,182 thousand .
In accordance with IAS 36, goodwill is not amortized and is tested for impairment annually, or more frequently if facts or circumstances indicate that the asset may be impaired. Impairment testing is performed by comparing the carrying amount and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.
The assumptions used in this process represent management’s best estimate for the period under consideration. The estimate of the value in use of the CGU for purposes of performing the annual impairment test was based on the following assumptions:
•
The expected future cash flows covering the period from 2020 through 2023 have been derived from the Ferrari business plan. In particular the estimate considers expected EBITDA adjusted to reflect the expected capital expenditure. These cash flows relate to the CGU in its condition when preparing the financial statements and exclude the estimated cash flows that might arise from restructuring plans or other structural changes. Volumes and sales mix used for estimating the future cash flows are based on assumptions that are considered reasonable

F-36

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


and sustainable and represent the best estimate of expected conditions regarding market trends for the CGU over the period considered.
•
The expected future cash flows include a normalized terminal period used to estimate the future results beyond the time period explicitly considered, which were calculated by using the specific medium/long-term growth rate for the sector equal to 2.0 percent in 2019 ( 2.0 percent in 2018 and 2017 ).
•
The expected future cash flows have been estimated in Euro, and discounted using a post-tax discount rate appropriate for that currency, determined by using a base WACC of 6.8 percent in 2019 ( 7.0 percent in 2018 and 2017 ). The WACC used reflects the current market assessment of the time value of money for the period being considered and the risks specific to the CGU under consideration.
The recoverable amount of the CGU was significantly higher than its carrying amount. Furthermore, the exclusivity of the business, its historical profitability and its future earnings prospects indicate that the carrying amount of the goodwill will continue to be recoverable, even in the event of difficult economic and market conditions.

14. INTANGIBLE ASSETS
Externally
acquired
development
costs
Development
costs
internally
generated
Patents,
concessions
and licenses
Other
intangible
assets
Total
(€ thousand)
Gross carrying amount at
January 1, 2018
1,081,287

516,961

167,886

45,085

1,811,219

Additions
242,753

75,109

14,052

5,628

337,542

Reclassification
—

—

508

(508
)
—

Translation differences and other movements
—

—

1,168

143

1,311

Balance at December 31, 2018
1,324,040

592,070

183,614

50,348

2,150,072

Additions
243,040

86,919

17,606

5,893

353,458

Reclassification
—

—

6,950

(6,950
)
—

Translation differences and other movements
—

—

(679
)
(688
)
(1,367
)
Balance at December 31, 2019
1,567,080

678,989

207,491

48,603

2,502,163

Accumulated amortization at January 1, 2018
847,129

343,348

141,806

38,480

1,370,763

Amortization
83,427

31,764

14,914

2,259

132,364

Translation differences and other movements
—

—

1,196

(48
)
1,148

Balance at December 31, 2018
930,556

375,112

157,916

40,691

1,504,275

Amortization
103,812

35,817

18,677

2,158

160,464

Translation differences and other movements
—

—

(292
)
(222
)
(514
)
Balance at December 31, 2019
1,034,368

410,929

176,301

42,627

1,664,225

Carrying amount at:
January 1, 2018
234,158

173,613

26,080

6,605

440,456

December 31, 2018
393,484

216,958

25,698

9,657

645,797

December 31, 2019
532,712

268,060

31,190

5,976

837,938


F-37

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Additions of €353,458 thousand in 2019 ( €337,542 thousand in 2018 ) primarily relate to externally acquired and internally generated costs for the development of new and existing models.
15. PROPERTY, PLANT AND EQUIPMENT
Land
Industrial
buildings
Plant, machinery and equipment
Other
assets
Advances and assets under construction
Total
(€ thousand)
Gross carrying amount at
January 1, 2018
23,537

341,749

1,959,462

136,991

56,760

2,518,499

Additions
25

14,710

81,936

9,679

194,444

300,794

Divestitures
—

(641
)
(16,684
)
(2,740
)
(238
)
(20,303
)
Reclassification
—

17,225

16,853

1,137

(35,215
)
—

Translation differences and other movements
12

330

(3,130
)
(593
)
(560
)
(3,941
)
Balance at December 31, 2018
23,574

373,373

2,038,437

144,474

215,191

2,795,049

Impact of IFRS adoption at January 1, 2019
—

17,226

10,011

36,298

—

63,535

Additions
30

15,560

176,235

18,102

142,227

352,154

Divestitures
—

(884
)
(11,281
)
(7,673
)
(459
)
(20,297
)
Reclassification
—

5,937

148,102

1,524

(155,563
)
—

Translation differences and other movements
5

(2,554
)
16

(197
)
—

(2,730
)
Balance at December 31, 2019
23,609

408,658

2,361,520

192,528

201,396

3,187,711

Accumulated amortization at January 1, 2018
—

142,260

1,555,769

110,210

—

1,808,239

Depreciation
—

10,407

136,793

9,184

—

156,384

Divestitures
—

(627
)
(15,976
)
(2,621
)
—

(19,224
)
Translation differences and other movements
—

2,864

(1,050
)
(2,714
)
—

(900
)
Balance at December 31, 2018
—

154,904

1,675,536

114,059

—

1,944,499

Depreciation
—

15,443

159,302

16,737

—

191,482

Divestitures
—

(417
)
(11,001
)
(3,917
)
—

(15,335
)
Translation differences and other movements
—

(2,798
)
2

209

—

(2,587
)
Balance at December 31, 2019
—

167,132

1,823,839

127,088

—

2,118,059

Carrying amount at:
January 1, 2018
23,537

199,489

403,693

26,781

56,760

710,260

December 31, 2018
23,574

218,469

362,901

30,415

215,191

850,550

December 31, 2019
23,609

241,526

537,681

65,440

201,396

1,069,652

of which right-of use assets under IFRS 16
—

15,834

7,612

34,319

—

57,765

Additions for the periods presented mainly relate to car production and engine assembly lines (including those for models to be launched in future years), industrial tools used for the production of cars, and our personalization programs.
As a result of adopting IFRS 16 - Leases on January 1, 2019, the Group recognized right-of-use assets of €63,535 thousand (and related lease liabilities) in relation to leases which had previously been classified as operating leases under IAS 17. For further details of the impact of adoption, see Note 2 “ Significant Accounting Policies - New standards and amendments effective from January 1, 2019 - IFRS 16-Leases ”.

F-38

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The following table summarizes the changes in the carrying amount of right-of-use assets for the year ended December 31, 2019:
Industrial buildings
Plant, machinery and equipment
Other assets
Total
(€ thousand)
Balance at December 31, 2018 (*)
9

—

765

774

Impact of IFRS 16 adoption
17,226

10,011

36,298

63,535

Balance at January 1, 2019
17,235

10,011

37,063

64,309

Additions
3,532

2,800

6,428

12,760

Depreciation
(4,664
)
(5,023
)
(7,380
)
(17,067
)
Translation differences and other movements
(269
)
(176
)
(1,792
)
(2,237
)
Balance at December 31, 2019
15,834

7,612

34,319

57,765

___________________________
(*) Relates to lease assets that were previously recognized as ‘finance leases’ under IAS 17 - Leases.

Amounts recognized in the income statement in relation to leases for the year ended December 31, 2019 were as follows:
For the year ended December 31, 2019
(€ thousand)
Depreciation of right-of-use assets
17,067

Interest expense on lease liabilities
1,172

Variable lease payments not included in the measurement of lease liabilities
1,143

Expenses relating to short-term leases and leases of low-value assets
4,635

Total expenses recognized
24,017

At December 31, 2019 , the Group had contractual commitments for the purchase of property, plant and equipment amounting to €105,335 thousand ( €146,281 thousand at December 31, 2018 ).

16. INVESTMENTS AND OTHER FINANCIAL ASSETS
At December 31,
2019
2018
(€ thousand)
Investments accounted for using the equity method
30,012

25,972

Other securities and financial assets
8,704

6,162

Total investments and other financial assets
38,716

32,134

Investments accounted for using the equity method
Investments accounted for using the equity method relates to the Group’s investment in FFS GmbH.

F-39

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Changes in the investments accounted for using the equity method were as follows:

(€ thousand)
Balance at January 1, 2018
23,340

Proportionate share of net profit for the year ended December 31, 2018
2,665

Proportionate share of remeasurement of defined benefit plans
(33
)
Balance at December 31, 2018
25,972

Proportionate share of net profit for the year ended December 31, 2019
4,043

Proportionate share of remeasurement of defined benefit plans
(3
)
Balance at December 31, 2019
30,012

Summarized financial information relating to FFS GmbH at and for the years ended December 31, 2019 and 2018 were as follows:
At December 31,
2019
2018
(€ thousand)
Assets
Non-current assets
2,436

1,402

Receivables from financing activities
660,883

591,482

Other current assets
8,565

12,630

Cash and cash equivalents
6,471

5,957

Total assets
678,355

611,471

Equity and liabilities
Equity
58,049

49,969

Debt
604,643

546,595

Other liabilities
15,663

14,907

Total equity and liabilities
678,355

611,471

For the year ended December 31,
2019
2018
(€ thousand)
Net revenues
34,680

29,446

Cost of sales
15,655

12,183

Selling, general and administrative costs
8,892

8,720

Other (income)/expenses, net
(963
)
239

Profit before taxes
11,096

8,304

Income tax expense
3,010

2,974

Net profit
8,086

5,330

Other securities and financial assets
Other securities and financial assets primarily include Series C Liberty Formula One shares (the “Liberty Media Shares”) of Liberty Media Corporation (the group responsible for the promotion of the Formula 1 World Championship), which are measured at fair value and amounted to €7,674 thousand at December 31, 2019 ( €5,142 thousand at December 31, 2018).


F-40

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


17. INVENTORIES
At December 31,
2019
2018
(€ thousand)
Raw materials
85,155

74,053

Semi-finished goods
91,119

84,576

Finished goods
243,777

232,435

Total inventories
420,051

391,064

Finished goods primarily includes cars and spare parts.
The accrual to the provision for slow moving and obsolete inventories recognized within cost of sales during 2019 was €14,512 thousand ( €11,062 thousand in 2018 and €10,140 thousand in 2017 ).
Changes in the provision for slow moving and obsolete inventories were as follows:
2019
2018
(€ thousand)
At January 1,
73,426

66,989

Provision
14,512

11,062

Use and other changes
(4,265
)
(4,625
)
At December 31,
83,673

73,426


18. CURRENT RECEIVABLES AND OTHER CURRENT ASSETS
At December 31,
2019
2018
(€ thousand)
Trade receivables
231,439

211,399

Receivables from financing activities
966,448

878,496

Current tax receivables
21,078

128,234

Other current assets
92,830

64,295

Total
1,311,795

1,282,424

Trade receivables
The following table sets forth a breakdown of trade receivables by nature:
At December 31,
2019
2018
(€ thousand)
Trade receivables due from:
Dealers
74,589

64,739

FCA Group companies
49,782

47,882

Sponsorship and commercial activities
46,375

43,500

Brand activities
24,937

26,247

Other
35,756

29,031

Total
231,439

211,399


F-41

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Trade receivables due from dealers relate to receivables for the sale of cars across the dealer network and are generally settled within 30 to 40 days from the date of invoice.
Trade receivables due from FCA Group companies mainly relate to the sale of engines and car bodies to Maserati S.p.A. and Officine Maserati Grugliasco S.p.A. (together “Maserati”) which are controlled by the FCA Group. For additional information, see Note 28, “ Related Party Transactions ”.
Trade receivables due from sponsorship and commercial activities mainly relate to amounts receivable from sponsorship agreements and commercial activities relating to the Group’s participation in the Formula 1 World Championship. Trade receivables due from brand activities relate to amounts receivable for licensing and merchandising activities.
The Group is not exposed to significant concentration of third party credit risk.
The following table sets forth a breakdown of trade receivables by currency:
At December 31,
2019
2018
(€ thousand)
Trade receivables denominated in:
Euro
127,226

128,396

U.S. Dollar
75,138

68,410

Pound Sterling
7,238

3,440

Chinese Yuan
2,101

1,777

Japanese Yen
11,018

1,571

Other
8,718

7,805

Total
231,439

211,399

Trade receivables are shown net of an allowance for doubtful accounts determined on the basis of insolvency risk and historical experience, adjusted for forward-looking factors specific to the receivables and economic environment. Accruals to the allowance for doubtful accounts are recorded in selling, general and administrative costs in the consolidated income statement.
Changes in the allowance for doubtful accounts of trade receivables during the year were as follows:
2019
2018
(€ thousand)
At January 1,
24,346

21,993

Provision
2,976

2,737

Use and other changes
(151
)
(384
)
At December 31,
27,171

24,346


F-42

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Receivables from financing activities
Receivables from financing activities relate entirely to the financial services portfolio in the United States and are detailed as follows:
At December 31,
2019
2018
(€ thousand)
Client financing
950,842

851,209

Dealer financing
15,606

27,287

Total receivables from financing activities
966,448

878,496

Receivables from financing activities are shown net of an allowance for doubtful accounts determined on the basis of insolvency risks, adjusted for forward-looking factors specific to the receivables and economic environment. Accruals to the allowance for doubtful accounts are recorded in cost of sales in the consolidated income statement.
Changes in the allowance for doubtful accounts of receivables from financing activities during the year are as follows:
2019
2018
(€ thousand)
At January 1,
6,457

6,948

Provision
4,739

2,687

Use and other changes
(3,716
)
(3,178
)
At December 31,
7,480

6,457

Client financing
Client financing relates to financing provided by the Group to Ferrari clients to finance their car acquisitions. During 2019 the average contractual duration at inception of such contracts was approximately 67 months (in line with 2018) and the weighted average interest rate was approximately 6.0 percent (approximately 5.7 percent in 2018). Receivables for client financing are generally secured on the titles of the related cars or other personal guarantees.
Client financing relates entirely to financial services activities in the United States and is denominated in U.S. Dollars.
Dealer financing
The Group provides dealer financing in the United States. Receivables for dealer financing are typically generated by sales of cars managed under dealer network financing programs as a component of the portfolio of financial services activities. In 2019 these receivables were interest bearing at a rate between 4.5 percent and 7.0 percent (between 4.1 percent and 7.0 percent in 2018 ), with the exception of an initial limited, non-interest bearing period. The contractual terms governing the relationships with the dealer network may vary, although payment terms generally range from 1 to 6 months. Receivables on dealer financing are generally secured by the titles of the related cars or other collateral. In November 2019 the Group exited one of the remaining dealer financing arrangements.
Current tax receivables
The decrease in current tax receivables primarily related to the Patent Box benefit recognized in 2018.

F-43

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Other current assets
Other current assets are detailed as follows:
At December 31,
2019
2018
(€ thousand)
Italian and foreign VAT credits
48,719

20,466

Prepayments
39,856

35,758

Other
4,255

8,071

Total other current assets
92,830

64,295

Other includes security deposits, amounts due from personnel and other receivables.
At December 31, 2019 , the Group had provided guarantees through third parties amounting to €95,304 thousand ( €133,175 thousand at December 31, 2018 ), principally to banks and relevant tax authorities for (i) a U.S. Dollar denominated credit facility of FFS Inc, and (ii) the VAT related to the temporary import of classic cars for restoration activities which would become due if the car is not exported.
The analysis of receivables and other current assets by due date (excluding prepayments) is as follows:
At December 31, 2019
Due within one year
Due between one and five years
Due beyond five years
Overdue
Total
(€ thousand)
Trade receivables
184,613

48

—

46,778

231,439

Receivables from financing activities
165,164

683,096

58,740

59,448

966,448

Client financing
161,753

670,901

58,740

59,448

950,842

Dealer financing
3,411

12,195

—

—

15,606

Current tax receivables
20,397

681

—

—

21,078

Other current assets
52,449

346

179

—

52,974

Total
422,623

684,171

58,919

106,226

1,271,939


At December 31, 2018
Due within one year
Due between one and five years
Due beyond five years
Overdue
Total
(€ thousand)
Trade receivables
174,627

—

—

36,772

211,399

Receivables from financing activities
172,049

600,615

52,032

53,800

878,496

Client financing
144,762

600,615

52,032

53,800

851,209

Dealer financing
27,287

—

—

—

27,287

Current tax receivables
127,573

661

—

—

128,234

Other current receivables
28,036

494

7

—

28,537

Total
502,285

601,770

52,039

90,572

1,246,666



F-44

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


19. CURRENT FINANCIAL ASSETS AND OTHER FINANCIAL LIABILITIES
At December 31,
2019
2018
(€ thousand)
Financial derivatives
9,423

6,788

Other financial assets
1,986

3,386

Current financial assets
11,409

10,174

Current financial assets and other financial liabilities mainly relates to foreign exchange derivatives. The following table sets further the analysis of derivative assets and liabilities at December 31, 2019 and 2018.
At December 31,
2019
2018
Positive fair
value
Negative fair
value
Positive fair
value
Negative fair
value
(€ thousand)
Cash flow hedge:
Foreign currency derivatives
8,039

(14,547
)
3,240

(10,853
)
Interest rate caps
87

—

555

—

Total cash flow hedges
8,126

(14,547
)
3,795

(10,853
)
Other foreign currency derivatives
1,294

(244
)
1,023

(489
)
Interest rate caps
3


—


1,970


—

Total
9,423

(14,791
)
6,788

(11,342
)
Foreign currency derivatives which do not meet the requirements to be recognized as cash flow hedges are presented as other foreign currency derivatives. Interest rate caps relate to derivative instruments required as part of certain of the funding from securitization programs.
The following tables provide an analysis by foreign currency of outstanding derivative financial instruments based on their fair value and notional amounts:
At December 31, 2019
At December 31, 2018
Fair Value
Notional Amount
Fair Value
Notional Amount
(€ thousand)
Currencies:
U.S. Dollar
2,826

1,338,800

(1,324
)
487,336

Pound Sterling
(4,639
)
175,247

613

138,609

Japanese Yen
923

272,183

(2,901
)
113,596

Swiss Franc
(1,716
)
87,632

(1,182
)
64,229

Chinese Yuan
55

57,094

(82
)
45,434

Other (1)
(2,817
)
106,491

322

116,476

Total amount
(5,368
)
2,037,447

(4,554
)
965,680

______________________________
(1)    Other mainly includes the Australian Dollar, the Hong Kong Dollar and the Canadian Dollar.
At December 31, 2019 and 2018, all derivative financial instruments had a maturity of twelve months or less.

F-45

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Cash flow hedges
The effects recognized in the consolidated income statement mainly relate to currency risk management and in particular the exposure to fluctuations in the Euro/U.S. Dollar exchange rate for sales in U.S. Dollars.
The policy of the Group for managing foreign currency risk normally requires hedging of a portion of projected future cash flows from trading activities and orders acquired (or contracts in progress) in foreign currencies which will occur within the following 12 months. It is considered reasonable that the hedging effect arising from this and recorded in the cash flow hedge reserve will be recognized in the consolidated income statement, mainly during the following 12 months.
Derivatives relating to currency risk management are treated as cash flow hedges where the derivative qualifies for hedge accounting. The amount recorded in the cash flow hedge reserve will be recognized in the consolidated income statement according to the timing of the flows of the underlying transaction.
The Group reclassified gains and losses, net of the tax effect, from other comprehensive income/(loss) to the consolidated income statement as follows:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Net (costs)/revenues
(22,055
)
3,777

19,724

Income tax benefit/(expense)
6,153

(1,054
)
(5,503
)
Total recognized in the consolidated income statement
(15,902
)
2,723

14,221

The ineffectiveness of cash flow hedges was not material for the years 2019 , 2018 and 2017 .


F-46

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


20. EQUITY
Share capital
At December 31, 2019 the fully paid up share capital of the Company was €2,573 thousand , consisting of 193,923,499 common shares and 63,349,111 special voting shares, all with a nominal value of €0.01 ( €2,504 thousand at December 31, 2018 consisting of 193,923,499 common shares and 56,497,618 special voting shares, all with a nominal value of €0.01 ). At December 31, 2019, the Company had 8,640,176 common shares and 2,190 special voting shares held in treasury, while at December 31, 2018, the Company had 6,002,843 common shares and 4,744 special voting shares held in treasury. The increase in common shares held in treasury primarily reflects the repurchase of shares by the Company through its share repurchase program, partially offset by shares assigned under equity incentive plans. As per the resolution of the Annual General Meeting of Shareholders on April 12, 2019 which approved to cancel all special voting shares in the share capital of the Company held in treasury as of that date, on August 29, 2019 the Company completed the cancellation process of 3,902 special voting shares.
The following table summarizes the changes in the number of outstanding common shares and outstanding special voting shares of the Company for the year ended December 31, 2019:
Common Shares
Special Voting Shares
Total
Outstanding shares at December 31, 2018
187,920,656

56,492,874

244,413,530

Common shares repurchased under share repurchase program (1)
(2,907,702
)
—

(2,907,702
)
Common shares assigned under equity incentive plans (2)
270,369

—

270,369

Special voting shares allocation (3)
—

6,854,047

6,854,047

Outstanding shares at December 31, 2019
185,283,323

63,346,921

248,630,244

_______________________________________
(1)
Includes shares repurchased between January 1, 2019 and December 31, 2019 based on the transaction trade date, for a total consideration of €386,094 thousand , including transaction costs.
(2)
During 2019, approximately 230 thousand performance share units and 40 thousand retention restricted share units vested under the Equity Incentive Plan 2016-2020 as a result of certain performance or retention requirements being achieved. As a result, a corresponding number of common shares, which were previously held in treasury, were assigned to participants of the plan. See Note 21 “Share-Based Compensation” for additional details.
(3)
Relates to the issuance, allocation and deregistration of certain special voting shares under the Company’s special voting shares terms and conditions.

The loyalty voting structure

The purpose of the loyalty voting structure is to reward ownership of the Company’s common shares and to promote stability of the Company’s shareholder base by granting long-term shareholders of the Company with special voting shares. Following the Separation, Exor N.V. (“Exor”) and Piero Ferrari participate in the Company’s loyalty voting program and, therefore, effectively hold two votes for each of the common shares they hold. Investors who purchase common shares may elect to participate in the loyalty voting program by registering their common shares in the loyalty share register and holding them for three years. The loyalty voting program will be affected by means of the issue of special voting shares to eligible holders of common shares. Each special voting share entitles the holder to exercise one vote at the Company’s shareholders meeting. Only a minimal dividend accrues to the special voting shares allocated to a separate special dividend reserve, and the special voting shares do not carry any entitlement to any other reserve of the Group. The special voting shares have only immaterial economic entitlements and, as a result, do not impact the Company’s earnings per share calculation.
Retained earnings and other reserves
Retained earnings and other reserves includes:
•
a share premium reserve of €5,768,544 thousand at December 31, 2019 ( €5,768,544 thousand at December 31, 2018 ), which primarily originated from the issuance of common shares pursuant to the restructuring activities undertaken as part of the Separation.
•
a legal reserve of €65 thousand at December 31, 2019 and €29 thousand at December 31, 2018 , determined in accordance with Dutch law.

F-47

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


•
a treasury reserve of €486,892 thousand at December 31, 2019 and €100,143 thousand at December 31, 2018.
•
a share-based compensation reserve of €46,539 thousand at December 31, 2019 and €52,198 thousand at December 31, 2018.
Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 12, 2019, a dividend distribution of €1.03 per common share was approved, corresponding to a total distribution of €193,328 thousand (of which €192,664 thousand was paid in 2019). The distribution was made from the retained earnings reserve.

Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 13, 2018, a dividend distribution of €0.71 per common share was approved, corresponding to a total distribution of €133,939 thousand (of which €133,095 thousand was paid in 2018). The distribution was made from the retained earnings reserve.

Following approval of the annual accounts by the shareholders at the Annual General Meeting of the Shareholders on April 14, 2017, a cash distribution of €0.635 per common share was approved, corresponding to a total distribution of €119,985 thousand . The distribution was made from the share premium reserve which is a distributable reserve under Dutch law.
During the year ended December 31, 2019 the Company repurchased 2,907,702 common shares for a total consideration of €386,749 thousand under the multi-year Euro 1.5 billion total share repurchase program announced in December 2018 ( 1,033,218 common shares for a total consideration of €100,093 thousand were repurchased during the year ended December 31, 2018 under a previous share repurchase program). Shares repurchased may be used to meet the Company’s obligations arising from the equity incentive plans.

Other comprehensive income
The following table presents other comprehensive income:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Items that will not be reclassified to the consolidated income statement in subsequent periods:
(Losses)/Gains on remeasurement of defined benefit plans (1)
(2,078
)
385

(730
)
Total items that will not be reclassified to the consolidated income statement in subsequent periods
(2,078
)
385

(730
)
Items that may be reclassified to the consolidated income statement in subsequent periods:
(Losses)/Gains on cash flow hedging instruments arising during the period
(24,327
)
(9,257
)
54,695

Losses/(Gains) on cash flow hedging instruments reclassified to the consolidated income statement
22,055

(3,777
)
(19,724
)
(Losses)/Gains on cash flow hedging instruments
(2,272
)
(13,034
)
34,971

Exchange differences on translating foreign operations arising during the period
2,652

5,986

(15,346
)
Total items that may be reclassified to the consolidated income statement in subsequent periods
380

(7,048
)
19,625

Total other comprehensive income
(1,698
)
(6,663
)
18,895

Related tax impact
1,066

3,520

(9,554
)
Total other comprehensive income, net of tax
(632
)
(3,143
)
9,341

__________________________
(1)
For the year ended December 31, 2019 includes €3 thousand ( €33 thousand for the year ended December 31, 2018) related to the Group’s proportionate share of the loss on remeasurement of defined benefit plans of FFS GmbH, for which the Group holds a 49.9 percent interest.

Gains and losses on the remeasurement of defined benefit plans include actuarial gains and losses arising during the period and are offset against the related net defined benefit liabilities.

F-48

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The tax effects relating to other comprehensive income/(loss) are summarized in the following table:
For the years ended December 31,
2019
2018
2017
Pre-tax balance
Related tax impact
Net balance
Pre-tax balance
Related tax impact
Net balance
Pre-tax balance
Related tax impact
Net balance
(€ thousand)
(Losses)/Gains on remeasurement of defined benefit plans
(2,078
)
456

(1,622
)
385

(88
)
297

(730
)
203

(527
)
(Losses)/Gains on cash flow hedging instruments
(2,272
)
610

(1,662
)
(13,034
)
3,608

(9,426
)
34,971

(9,757
)
25,214

Exchange gains/(losses) on translating foreign operations
2,652

—

2,652

5,986

—

5,986

(15,346
)
—

(15,346
)
Total other comprehensive (loss)/income
(1,698
)
1,066

(632
)
(6,663
)
3,520

(3,143
)
18,895

(9,554
)
9,341

Transactions with non-controlling interests
With the exception of dividends paid to non-controlling interests, there were no transactions with non-controlling interests for the years ended December 31, 2019 , 2018 or 2017 .

Policies and processes for managing capital
The Group’s objectives when managing capital are to create value for shareholders as a whole, safeguard business continuity and support the growth of the Group. As a result, the Group endeavors to maintain a satisfactory economic return for its shareholders and guarantee economic access to external sources of funds.

21. SHARE-BASED COMPENSATION

Equity Incentive Plan 2016 - 2020
Following the approval of the equity incentive plan by the Board of Directors in March 2017, the Shareholders approved in April 2017 an award to the former Chief Executive Officer under the Company’s equity incentive plan, which is applicable to members of the Senior Management Team (“SMT”) and key leaders of the Group (“Equity Incentive Plan 2016-2020”). The grants of the performance share units (“PSUs”) and the retention restricted share unites (“RSUs”), each representing the right to receive one common share of the Company, cover a five -year performance period from 2016 to 2020, consistent with the Company’s strategic horizon. In 2018, additional PSU and RSU awards were granted to the current Chief Executive Officer and certain key employees of the Group under this plan.

Performance Share Units 2016-2020

The Company awarded members of the SMT and key leaders a total target of approximately 237 thousand PSUs and 450 thousand PSUs to its former Chief Executive Officer in 2017, and an additional total of approximately 21 thousand PSUs were awarded to the current Chief Executive Officer in 2018. The PSUs vest in three equal tranches in 2019, 2020 and 2021, subject to the achievement of a market performance condition related to Total Shareholder Return (“TSR”). The interim partial vesting periods are independent of one another and any under-achievement in one period can be offset by over-achievement in subsequent periods. The total number of shares that will eventually be issued upon vesting of the PSUs may vary from the original award. The target amount of PSUs vests as follows based on the Company’s TSR performance compared to an industry specific peer group of eight , including the Company, (“Peer Group”):

F-49

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Ferrari TSR Ranking
% of Target Awards that Vest
CEO
SMT and Key Leaders
1
150%
150%
2
120%
120%
3
100%
100%
4
75%
—
5
50%
—
>5
0%
—
The defined Peer Group, which is applicable for the Performance Share Units 2016-2020, is as follows:
Ferrari
Brunello Cucinelli
Burberry
Ferragamo
Hermes
LVMH
Moncler
Richemont
The performance period for the PSUs commenced on January 1, 2016. The fair value of the awards used for accounting purposes was measured at the grant date using a Monte Carlo Simulation model. The range of the fair value of the PSUs that were awarded in 2017 is €59.36 to €72.06 per share and the range of the fair value of the PSUs that were awarded in 2018 is €61.30 and €111.92 .

The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:
Key assumptions
PSU Awards Granted in 2017
PSU Awards Granted in 2018
Grant date share price
€66.85
€113.70
Expected volatility
17.4%
16.7%
Dividend yield
1.2%
0.9%
Risk-free rate
0%
0%

The expected volatility was based on the observed volatility of the Peer Group. The risk-free rate was based on the iBoxx sovereign Eurozone yield.

For the first tranche of the PSU awards under the Equity Incentive Plan 2016-2020, which cover the performance period from 2016 to 2018, Ferrari ranked third in TSR within the defined industry-specific peer group applicable to the plan, resulting in the vesting of 100 percent of the target PSUs awarded. As a result, 230,282 PSU awards vested in 2019.

Retention Restricted Share Units

The Company awarded members of the SMT and key leaders a total of approximately 119 thousand RSUs in 2017, and an additional 10 thousand RSUs were awarded in 2018, including to the new Chief Executive Officer. The RSU awards granted are conditional on a recipient’s continued service to the Company, as described below. The RSUs, each of which represents the right to receive one common share of the Company, will vest in three equal tranches in 2019, 2020 and 2021, subject to continued employment with the Company at the time of vesting. For the first tranche of the RSU awards under the Equity Incentive Plan 2016-2020, 40,087 RSU awards vested in 2019.

The performance period for the RSUs commenced on January 1, 2016. The fair value of the awards was measured using the share price at the grant date adjusted for the present value of future distributions which employees will not receive during the vesting period. The range of the fair value of the RSUs awarded in 2017 is €63.00 to €64.64 per share and the range of the fair value of the RSUs awarded in 2018 is €110.76 to €112.99 .

Equity Incentive Plan 2019-2021

Under a new equity incentive plan approved in 2019, approximately 174 thousand PSUs and 111 thousand RSUs, which each represent the right to receive one Ferrari common share, were awarded to the Executive Chairman, the Chief Executive Officer, all members of the SMT and other key employees of the Group (“Equity Incentive Plan 2019-2021”). These PSUs and RSUs cover a three -year performance period from 2019 to 2021.


F-50

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Performance Share Units 2019-2021

The vesting of the PSUs is based on the achievement of defined key performance indicators relating to: i) TSR ranking, ii) an EBITDA target, and iii) innovation targets, which will each be settled independently of the others targets. The total number of shares that will be assigned upon vesting of the PSUs will depend on the level of achievement of the targets. The PSUs vest in 2022, except for the PSUs awarded to the Chief Executive Officer which will vest in three tranches of 12 percent , 12 percent and 76 percent in 2020, 2021 and 2022, respectively.

Of the total number of PSU awards, 50 percent vest based on the achievement of the TSR ranking of Ferrari compared to an industry specific peer group of eight , including the Company, (“New Peer Group”):

Ferrari TSR Rating
% of Awards that Vest
1
150%
2
120%
3
100%
4
75%
5
50%
>5
0%

The defined New Peer Group (*) , which is applicable to the Performance Share Units 2019-2021, is as follows:

Ferrari
Aston Martin
Burberry
Hermes
Kering
LVMH
Moncler
Richemont
____________________________
(*) Tiffany was removed from the New Peer Group as a consequence of its recently announced acquisition by LVMH in November 2019.

Of the total number of PSU awards, 30 percent vest based on the achievement of an EBITDA target determined by comparing Adjusted EBITDA to the Adjusted EBITDA targets derived from the business plan:

Actual Adjusted EBITDA Compared to Business Plan
% of Awards that Vest
+10%
140%
+5%
120%
Business Plan Target
100%
-5%
80%
<-5%
0%

Of the total number of PSU awards, 20 percent vest based on the achievement of defined objectives for technological innovation and the development of the new model pipeline over the performance period.

The performance period for the PSUs commenced on January 1, 2019. The fair value of the awards used for accounting purposes was measured at the grant date using a Monte Carlo Simulation model. The range of the fair value of the PSUs that were awarded is €110.57 - €111.64 per share. The key assumptions utilized to calculate the grant-date fair values for these awards are summarized below:

Key Assumptions
Grant date share price
122.60
Expected volatility
26.50%
Dividend yield
0.83%
Risk-free rate
0%


F-51

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The expected volatility was based on the observed volatility of the New Peer Group. The risk-free rate was based on the iBoxx sovereign Eurozone yield.

Retention Restricted Share Units (RSUs)

The vesting of the RSUs is conditional on the recipients continued employment with the Company at the time of vesting. The RSUs vest in 2022, except for the RSUs awarded to the Chief Executive Officer which vest in three equal tranches in 2020, 2021 and 2022. The range of the fair value of the RSUs awarded is €119.54 - €120.56 per share.

Outstanding share awards

Changes during 2019, 2018 and 2017 to the outstanding number of PSU and RSU share awards under both the Equity Incentive Plan 2016-2020 and Equity Incentive Plan 2019-2021 are as follows:

Outstanding PSU Awards
Outstanding RSU Awards
Balance at January 1, 2017
—

—

Granted (1)
686,933

118,467

Forfeited
—

—

Vested
—

—

Balance at December 31, 2017
686,933

118,467

Granted (1)
20,793

10,397

Forfeited
(21,200
)
(10,600
)
Vested
—

—

Balance at December 31, 2018
686,526

118,264

Granted (2)
175,307

110,968

Forfeited
(32,832
)
(18,000
)
Vested
(230,282
)
(40,087
)
Balance at December 31, 2019
598,719

171,145

_______________________________________
(1)
Granted under the Equity Incentive Plan 2016-2020
(2)
Granted under the Equity Incentive Plan 2019-2021

Share-based compensation expense

For the years ended December 31, 2019, 2018 and 2017, the Company recognized €17,480 thousand , €22,491 thousand and €28,179 thousand , respectively, as share-based compensation expense and an increase to other reserves in equity for the PSU awards and RSU awards. At December 31, 2019, unrecognized compensation expense amounted to €19,298 thousand and will be recognized over the remaining vesting periods through 2021.




F-52

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


22. EMPLOYEE BENEFITS
The Group’s provisions for employee benefits are as follows:
At December 31,
2019
2018
(€ thousand)
Present value of defined benefit obligations:
Italian employee severance indemnity (TFR)
21,795

21,195

Pension plans
134

485

Total present value of defined benefit obligations
21,929

21,680

Other provisions for employees
66,187

64,895

Total provisions for employee benefits
88,116

86,575

Defined contribution plan
The Group recognizes the cost for defined contribution plans over the period in which the employee renders service and classifies this by function in cost of sales, selling, general and administrative costs and research and development costs. The total income statement expense for defined contributions plans in the years ended December 31, 2019 , 2018 and 2017 was €13,650 thousand , €11,930 thousand and €11,987 thousand , respectively.
Defined benefit obligations
Italian employee severance indemnity (TFR)
Trattamento di fine rapporto or “TFR” relates to the amounts that employees in Italy are entitled to receive when they leave the company and is calculated based on the period of employment and the taxable earnings of each employee. Under certain conditions the entitlement may be partially advanced to an employee during the employee’s working life.
The Italian legislation regarding this scheme was amended by Law 296 of 27 December 2006 and subsequent decrees and regulations issued in the first part of 2007. Under these amendments, companies with at least 50 employees are obliged to transfer the TFR to the “Treasury fund” managed by the Italian state-owned social security body (“INPS”) or to supplementary pension funds. Prior to the amendments, accruing TFR for employees of all Italian companies could be managed by the company itself. Consequently, the Italian companies’ obligation to INPS and the contributions to supplementary pension funds take the form, under IAS 19 revised, of “Defined contribution plans” whereas the amounts recorded in the provision for employee severance pay retain the nature of “Defined benefit plans”. Accordingly, the provision for employee severance indemnity in Italy consists of the residual obligation for TFR until December 31, 2006. This is an unfunded defined benefit plan as the benefits have already been almost entirely earned, with the sole exception of future revaluations. Since 2007 the scheme has been classified as a defined contribution plan, and the Group recognizes the associated cost, being the required contributions to the pension funds, over the period in which the employee renders service.
Pension plans
Group companies, primarily in Germany sponsor non-contributory defined benefit pension plans, for which the Group meets the benefit payment obligation when it falls due. Benefits provided depends on the employee’s length of service and their salary in the final years leading up to retirement.

F-53

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The expected benefit payments for the defined benefit obligations are as follows:
Expected benefit payments
TFR
Pension plans
(€ thousand)
2020
1,396

2

2021
1,677

2

2022
1,808

2

2023
1,531

2

2024
1,599

2

Beyond 2024
6,086

611

Total
14,097

621

The following table summarizes the changes in the defined benefit obligations:
TFR liability
Pension plans
Total
(€ thousand)
Amounts at December 31, 2017
22,641

604

23,245

Included in the consolidated income statement
—

55

55

Included in other comprehensive income/(loss) (*)
(390
)
(28
)
(418
)
Other
(1,056
)
(146
)
(1,202
)
Benefits paid
(1,620
)
(169
)
(1,789
)
Other changes
564

23

587

Amounts at December 31, 2018
21,195

485

21,680

Included in the consolidated income statement
—

(492
)
(492
)
Included in other comprehensive income/(loss) (*)
1,899

176

2,075

Other
(1,299
)
(35
)
(1,334
)
Benefits paid
(1,490
)
(24
)
(1,514
)
Other changes
191

(11
)
180

Amounts at December 31, 2019
21,795

134

21,929

______________________________
(*) Relates to actuarial losses/(gains) from financial assumptions.

F-54

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Amounts recognized in the consolidated income statement are as follows:
For the years ended December 31,
2019
2018
2017
TFR
Pension plans
Total
TFR
Pension plans
Total
TFR
Pension plans
Total
(€ thousand)
Current service cost
—

26

26

—

55

55

—

141

141

Interest expense
—

—

—

—

—

—

—

1

1

Past service adjustments
—

(518
)
(518
)
—

—

—

—

—

—

Total recognized in the consolidated income statement
—

(492
)
(492
)
—

55

55

—

142

142

Past service credit relates to gains recognized in the consolidated income statement due to plan amendments and curtailments.
The discount rates used for the measurement of the Italian TFR obligation are based on yields of high-quality (AA rated) fixed income securities for which the timing and amounts of payments match the timing and amounts of the projected benefit payments. For this plan, the single weighted average discount rate that reflects the estimated timing and amount of the scheme future benefit payments for 2019 is equal to 0.7 percent ( 1.7 percent in 2018 and 1.5 percent in 2017 ). The average duration of the Italian TFR is approximately 9 years . Retirement or employee leaving rates are developed to reflect actual and projected Group experience and legal requirements for retirement in Italy.
The discount rates used for the measurement of the pension plan obligation (excluding TFR) and the interest expense/(income) of net period cost, are based on the rate of return on high-quality (AA rated) fixed income investments for which the timing and amounts of payments match the timing and amounts of the projected pension defined benefit plan which for 2019 was equal to approximately zero percent ( 0.8 percent 2018 and 0.7 percent in 2017 ). The average duration of the obligations is approximately 14 years .
Current service cost is recognized by function in cost of sales, selling, general and administrative costs or research and development costs.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
At December 31,
2019
2018
Changes in assumption of +1% discount rate
Changes in assumption of -1% discount rate
Changes in assumption of +1% discount rate
Changes in assumption of -1% discount rate
(€ thousand)
Impact on defined benefit obligation
(1,695
)
1,951

(1,647
)
1,891

The above sensitivity analysis on TFR is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the defined benefit liability recognized in the statement of the financial position.
Other provisions for employees
Other provisions for employees consist of the expected future amounts payable to employees in connection with other remuneration schemes, which are not subject to actuarial valuation, including long-term bonus plans.

F-55

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


At December 31, 2019 , other provisions for employees comprised long term bonus benefits amounting to €62,890 thousand ( €61,940 thousand at December 31, 2018 ) and jubilee benefits granted to certain employees by the Group in the event of achieving 30 years of service amounting to €3,297 thousand ( €2,955 thousand at December 31, 2018 ).

23. PROVISIONS
Changes in provisions were as follows:
At
December 31,
2018
Additional provisions
Utilization
Translation differences and other
At
December 31,
2019
(€ thousand)
Warranty and recall campaigns provision
111,129

28,131

(32,584
)
1,135

107,811

Legal proceedings and disputes
37,154

3,037

(14,280
)
1,186

27,097

Other risks
34,256

12,393

(18,553
)
2,568

30,664

Total provisions
182,539

43,561

(65,417
)
4,889

165,572

Warranty and recall campaigns provision
The warranty and recall campaigns provision represents the best estimate of commitments given by the Group for contractual, legal, or constructive obligations arising from product warranties given for a specified period of time. Such provisions are recognized on shipment of the car to the dealer.
The warranty and recall campaigns provision is estimated on the basis of the Group’s past experience and contractual terms. Related costs are recognized within cost of sales.
Due to an industry wide recall relating to Takata airbags manufactured using non-desiccated Phase Stabilized Ammonium Nitrate (“PSAN”), in 2016 the Group initiated a global recall campaign on cars mounted with such airbags. Due to the uncertainty of recoverability of the costs from Takata, the Group recognized an aggregate provision of € 36,994 thousand in 2016 (within cost of sales). At December 31, 2019, the provision amounted to €15,519 thousand ( €24,513 thousand at December 31, 2018), reflecting the current best estimate for future costs of the Group related to the recall campaign. The decrease in the provision relates to ongoing recall activities as well as a partial release in 2018.
Legal proceedings and disputes

The provision for legal proceedings and disputes represents management’s best estimate of the expenditures expected to be required to settle or otherwise resolve legal proceedings and disputes. This class of claims relate to allegations by contractual counterparties that the Group has violated the terms of the arrangements, including by terminating the applicable relationships. Judgments in these proceedings may be issued in 2020 or beyond, although any such judgment may remain subject to judicial review. While the outcome of such proceedings is uncertain, any losses in excess of the provisions recorded are not expected to be material to the Group’s financial condition or results of operations.

The utilization of the provision for legal proceedings and disputes includes a release for a change in the estimate of the risk and related provision associated with a legal dispute based on developments in the first quarter of 2019. Accruals to the provision for legal proceedings and disputes are recognized within other expenses, net.

Other risks

The provision for other risks are related to disputes and matters which are not subject to legal proceedings, including disputes with suppliers, distributors, employees and other parties, as well as environmental risks.

The utilization of the provision for other risks includes a release of provisions related to favorable developments in emissions regulations that occurred in the third quarter of 2019.

F-56

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018



The following table sets forth additional provisions to other risks recognized for the years ended December 31, 2019 , 2018 and 2017 .
For the years ended December 31,
2019
2018
2017
(€ thousand)
Recorded in the consolidated income statement within:
Cost of sales
9,563

11,420

8,065

Selling, general and administrative costs
2,830

—

274

Total
12,393

11,420

8,339


24. DEBT
Balance at December 31, 2018
Impact of IFRS 16 adoption
Balance at January 1, 2019
Proceeds from borrowings
Repayments of borrowings
Interest accrued and other
Translation differences
Balance at December 31, 2019
(€ thousand)
Bonds and notes
1,198,109

—

1,198,109

298,316

(315,395
)
4,440

—

1,185,470

Asset-backed financing (Securitizations)
682,581

—

682,581

282,113

(189,940
)
(82
)
13,597

788,269

Lease liabilities
673

63,535

64,208

14,788

(18,684
)
—

184

60,496

Borrowings from banks
35,984

—

35,984

—

(3,516
)
(71
)
549

32,946

Other debt
9,820

—

9,820

33,801

(21,479
)
—

414

22,556

Total debt
1,927,167

63,535

1,990,702

629,018

(549,014
)
4,287

14,744

2,089,737

The breakdown of debt by nature and by maturity is as follows:
At December 31,
2019
2018
Due within one year
Due between
one and
five years
Due beyond five years
Total
Due within one year
Due between
one and
five years
Due beyond five years
Total
(€ thousand)
Bonds and notes
7,260

879,834

298,376

1,185,470

7,616

1,190,493

—

1,198,109

Asset-backed financing (Securitizations)
338,366

449,903

—

788,269

300,051

382,530

—

682,581

Lease liabilities
20,195

—

25,894

14,407

60,496

673

—

—

673

Borrowings from banks
32,946

—

—

32,946

34,249

1,735

—

35,984

Other debt
22,556

—

—

22,556

9,820

—

—

9,820

Total debt
421,323

1,355,631

312,783

2,089,737

352,409

1,574,758

—

1,927,167

Bonds and notes

2023 Bond

On March 16, 2016, the Company issued 1.5 percent coupon notes due March 2023, having a principal of €500 million . The bond was issued at a discount for an issue price of 98.977 percent , resulting in net proceeds of €490,729 thousand after the debt discount and issuance costs. The net proceeds were used, together with additional cash held by the Company, to fully repay

F-57

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


a €500 million bank loan. The bond is unrated and was admitted to trading on the regulated market of the Irish Stock Exchange. Following a cash tender offer, on July 16, 2019 the Company executed the repurchase of these notes for an aggregate nominal amount of €115,395 thousand . The amount outstanding at December 31, 2019 of €385,776 thousand includes accrued interest of €4,567 thousand ( €500,197 thousand including accrued interest of €5,938 thousand at December 31, 2018).

2021 Bond

On November 16, 2017, the Company issued 0.25 percent coupon notes due January 2021, having a principal of €700 million . The bond was issued at a discount for an issue price of 99.557 percent , resulting in net proceeds of €694,172 thousand after the debt discount and issuance costs. The net proceeds were primarily used to repay a bank loan. The bond is unrated and was admitted to trading on the regulated market of the Irish Stock Exchange. Following a cash tender offer, on July 16, 2019 the Company executed the repurchase of these notes for an aggregate nominal amount of €200,000 thousand . The amount outstanding at December 31, 2019 of €499,824 thousand includes accrued interest of €1,199 thousand ( €697,912 thousand including accrued interest of €1,678 thousand at December 31, 2018).

The notes for both the 2023 Bond and the 2021 Bond impose covenants on Ferrari including: (i) negative pledge clauses which require that, in case any security interest upon assets of Ferrari is granted in connection with other notes or debt securities with the consent of Ferrari are, or are intended to be, listed, such security should be equally and ratably extended to the outstanding notes, subject to certain permitted exceptions; (ii) pari passu clauses, under which the notes rank and will rank pari passu with all other present and future unsubordinated and unsecured obligations of Ferrari; (iii) events of default for failure to pay principal or interest or comply with other obligations under the notes with specified cure periods or in the event of a payment default or acceleration of indebtedness or in the case of certain bankruptcy events; and (iv) other clauses that are customarily applicable to debt securities of issuers with a similar credit standing. A breach of these covenants may require the early repayment of the notes. As of December 31, 2019 and 2018, Ferrari was in compliance with the covenants of the notes.

2029 and 2031 Notes

On July 31, 2019, the Company issued 1.12 percent senior notes due August 2029 (“2029 Notes”) and 1.27 percent senior notes due August 2031 (“2031 Notes”) through a private placement to certain US institutional investors, each having a principal of €150 million . The net proceeds from the issuances amounted to €298,316 thousand and are to be primarily used towards general corporate purposes, including the funding of capital expenditures. The amounts outstanding of the 2029 Notes and 2031 Notes at December 31, 2019 were €149,891 thousand and €149,979 thousand , including accrued interest of €700 thousand and €794 thousand , respectively.

Asset-backed financing (Securitizations)

As a means of diversifying its sources of funds, the Group sells certain of its receivables originated by its financial services activities in the US through asset-backed financing or securitization programs (the terms asset-backed financing and securitization programs are used synonymously throughout this document), without transferring the risks typically associated with such receivables. As a result, the receivables sold through securitization programs are still consolidated until collection from the customer. As of December 31, 2019, the following revolving securitization programs were in place:
•
revolving securitization program for funding of up to $600 million by pledging retail financial receivables in the United States as collateral. The notes bear interest at a rate per annum equal to the aggregate of LIBOR plus a margin of 65 basis points. As of December 31, 2019 total proceeds net of repayments from the sales of financial receivables under the program were $ 547 million ( $424 million at December 31, 2018). The securitization agreement requires the maintenance of an interest rate cap.

•
revolving securitization program for funding of up to $250 million by pledging leasing financial receivables in the United States as collateral. The notes bear interest at a rate per annum equal to the aggregate of LIBOR plus a margin of 65 basis points. As of December 31, 2019 total proceeds net of repayments from the sales of financial receivables under the program were $ 238 million ( $223 million at December 31, 2018). The securitization agreement requires the maintenance of an interest rate cap.

•
revolving securitization program for funding of up to $135 million by pledging credit lines to Ferrari customers secured by personal vehicle collections and personal guarantees in the United States as collateral. The notes bear interest at a

F-58

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


rate per annum equal to the aggregate of LIBOR plus a margin of 115 basis points. As of December 31, 2019 total proceeds net of repayments from the sales of financial receivables under the program were $ 101 million ( $134 million at December 31, 2018).

The funding limits of the revolving securitization programs have been progressively increased since inception as the related receivables portfolios have finished.

Cash collected from the settlement of receivables or credit lines pledged as collateral under securitization programs is subject to certain restrictions regarding its use and is primarily applied to repay principal and interest of the related funding. Such cash amounted to € 27,524 thousand at December 31, 2019 (€ 26,497 thousand at December 31, 2018 ).


Lease liabilities
As a result of adopting IFRS 16 - Leases on January 1, 2019, the Group recognized right-of-use assets and related lease liabilities of €63,535 thousand in relation to leases which had previously been classified as operating leases under IAS 17. For further details please refer to Note 2 “ Significant Accounting Policies - New standards and amendments effective from January 1, 2019 - IFRS 16 - Leases ”.
As of December 31, 2019 lease liabilities amount to €60,496 thousand .
Borrowings from banks
Borrowings from banks at December 31, 2019 mainly relate to financial liabilities of FFS Inc to support the financial services operations, and in particular (i) €31,211 thousand ( €30,694 thousand at December 31, 2018 ) relating to a U.S. Dollar denominated credit facility for up to $50 million (drawn down for $35 million at December 31, 2019) and bearing interest at LIBOR plus a range of between 65 and 75 basis points; (ii) other borrowings from banks of €1,735 thousand ( €5,290 thousand at December 31, 2018 ) relating to various short and medium term credit facilities.

Revolving Credit Facility
At December 31, 2018 the Company had a revolving credit facility of €500 million which was undrawn and due to mature in November 2020. This revolving credit facility was cancelled in December 2019 and replaced with a new €350 million unsecured committed revolving credit facility (the “RCF”), which is intended for general corporate and working capital purposes. The RCF has a 5 year-tenor with two further one -year extension options, exercisable on the first and second anniversary of the signing date on the Company’s request and the approval of each participating bank. At December 31, 2019 the RCF was undrawn.

Other debt

Other debt primarily relates to other funding for financing activities of the Group.



F-59

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


25. OTHER LIABILITIES
An analysis of other liabilities is as follows:
At December 31,
2019
2018
(€ thousand)
Deferred income
275,439

271,817

Advances and security deposits
348,899

145,394

Accrued expenses
85,965

81,408

Payables to personnel
28,272

25,434

Social security payables
20,334

18,209

Other
41,106

47,481

Total other liabilities
800,015

589,743

Deferred income primarily includes amounts received under maintenance and power warranty programs of €219,209 thousand at December 31, 2019 and €204,987 thousand at December 31, 2018 , which are deferred and recognized as revenues over the length of the related program term. Of the total liability related to maintenance and power warranty programs as of December 31, 2019, the Group expects to recognize in net revenues approximately €61 million i n 2020, €44 million i n 2021, €35 million in 2022 and €79 million afterwards. Deferred income also includes amounts collected under various other agreements, which are dependent upon the future performance of a service or other act of the Group.

Advances and security deposits at December 31, 2019 and at December 31, 2018 primarily include advances received from clients for the purchase of our hypercars and limited edition cars, and at December 31, 2019 also our Icona cars. Upon shipment of such cars, the advances are recognized as revenue. The increase primarily relates to advances received for the Ferrari Monza SP1 and SP2. Of the total contract liability related to advances as of December 31, 2019, the Group expects to recognize the entire amount within net revenues in 2020 and 2021.

Changes in the Group’s contract liabilities for maintenance and power warranties, and advances from customers, were as follows:

At January 1, 2019

Additional amounts arising during the period

Amounts recognized within revenue

Other changes

At December 31, 2019

(€ thousand)
Maintenance and power warranty programs
204,987

90,998

(76,776
)
—

219,209

Advances from customers
139,852


377,950


(176,623
)

44


341,223


An analysis of other liabilities (excluding accrued expenses and deferred income) by due date is as follows:
At December 31,
2019
2018
Due within one year
Due between
one and
five years
Due beyond five years
Total
Due within one year
Due between
one and
five years
Due beyond five years
Total
(€ thousand)
Total other liabilities (excluding accrued expenses and deferred income)
422,462

10,083

6,066

438,611

223,138

6,960

6,420

236,518



F-60

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


26. TRADE PAYABLES
Trade payables of €711,539 thousand at December 31, 2019 ( €653,751 thousand at December 31, 2018 ) are entirely due within one year. The carrying amount of trade payables is considered to be equivalent to their fair value.

27. FAIR VALUE MEASUREMENT
IFRS 13 establishes a hierarchy that categorizes into three levels the inputs to the valuation techniques used to measure fair value by giving the highest priority to quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1 inputs) and the lowest priority to unobservable inputs (level 3 inputs). In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy at the lowest level input that is significant to the entire measurement.
Levels used in the hierarchy are as follows:
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities that the Group can access at the measurement date.
•
Level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly or indirectly.
•
Level 3 inputs are unobservable inputs for the assets and liabilities.
Assets and liabilities that are measured at fair value on a recurring basis
The following table shows the fair value hierarchy for financial assets and liabilities that are measured at fair value on a recurring basis at December 31, 2019 and 2018 :
At December 31, 2019
Note
Level 1
Level 2
Level 3
Total
(€ thousand)
Cash and cash equivalents
897,946

—

—

897,946

Investments and other financial assets - Liberty Media Shares
16
7,674

—

—

7,674

Current financial assets
19
—

9,423

—

9,423

Total assets
905,620

9,423

—

915,043

Other financial liabilities
19
—

14,791

—

14,791

Total liabilities
—

14,791

—

14,791

At December 31, 2018
Note
Level 1
Level 2
Level 3
Total
(€ thousand)
Cash and cash equivalents
793,664

—

—

793,664

Investments and other financial assets - Liberty Media Shares
16
5,142

—

—

5,142

Current financial assets
19
—

6,788

—

6,788

Total assets
798,806

6,788

—

805,594

Other financial liabilities
19
—

11,342

—

11,342

Total liabilities
—

11,342

—

11,342

There were no transfers between fair value hierarchy levels between 2018 and 2019.

F-61

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The fair value of current financial assets and other financial liabilities relates to derivative financial instruments and is measured by taking into consideration market parameters at the balance sheet date, using valuation techniques widely accepted in the financial business environment. In particular, the fair value of foreign currency derivatives (forward contracts, currency swaps and options) and interest rate caps is determined by taking the prevailing foreign currency exchange rate and interest rates, as applicable, at the balance sheet date.
The par value of cash and cash equivalents usually approximates fair value due to the short maturity of these instruments, which consist primarily of bank current accounts.
Assets and liabilities not measured at fair value on a recurring basis
For financial instruments represented by short-term receivables and payables, for which the present value of future cash flows does not differ significantly from carrying value, the Group assumes that carrying value is a reasonable approximation of the fair value. In particular, the carrying amount of current receivables and other current assets and of trade payables and other liabilities approximates their fair value.
The following table represents carrying amount and fair value for the most relevant categories of financial assets and liabilities not measured at fair value on a recurring basis:
At December 31,
2019
2018
Note
Carrying amount
Fair value
Carrying amount
Fair value
(€ thousand)
Receivables from financing activities
966,448

966,448

878,496

878,496

Client financing
950,842

950,842

851,209

851,209

Dealer financing
18
15,606

15,606

27,287

27,287

Total
966,448

966,448

878,496

878,496

Debt
24
2,089,737

2,103,871

1,927,167

1,921,937



F-62

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


28. RELATED PARTY TRANSACTIONS
Pursuant to IAS 24, the related parties of the Group are entities and individuals capable of exercising control, joint control or significant influence over the Group and its subsidiaries, companies belonging to the FCA Group and other companies controlled by the Exor Group (including CNH Industrial N.V. and its subsidiaries), unconsolidated subsidiaries of the Group, associates and joint ventures. In addition, members of the Ferrari Board of Directors, Board of Statutory Auditors and executives with strategic responsibilities and their families are also considered related parties.
The Group carries out transactions with related parties on commercial terms that are normal in the respective markets, considering the characteristics of the goods or services involved. Transactions carried out by the Group with these related parties are primarily of a commercial nature and, in particular, these transactions relate to:
Transactions with FCA Group companies
•
the sale of engines and car bodies to Maserati S.p.A. (“Maserati”) which is controlled by the FCA Group;
•
the purchase of engine components for the use in the production of Maserati engines from FCA US LLC, which is controlled by FCA Group;
•
a technical cooperation, starting from November 2019, between the Group and FCA Group with the aim to enhance the quality and competitiveness of their respective products, while reducing costs and investments;
•
the purchase of automotive lighting and automotive components from Magneti Marelli S.p.A., Automotive Lighting Italia S.p.A., Sistemi Sospensioni S.p.A. and Magneti Marelli Powertrain Slovakia s.r.o. (which form part of “Magneti Marelli”), which were controlled by the FCA Group until May 2, 2019 when FCA completed the sale of Magneti Marelli. Following the sale, Magneti Marelli (which subsequently operates under the name “Marelli”) is no longer a related party;
•
transactions with FCA Group companies, mainly relating to the services provided by FCA Group companies, including human resources, payroll, tax, customs and procurement of insurance coverage and sponsorship revenues.
Transactions with Exor Group companies (excluding FCA Group companies)

•
the Group incurs rental costs from Iveco Group companies related to the rental of trucks used by the Formula 1 racing team;

•
the Group earns sponsorship revenue from Iveco S.p.A.

Transactions with other related parties

•
the purchase of components for Formula 1 racing cars from COXA S.p.A., controlled by Piero Ferrari;

•
consultancy services provided by HPE S.r.l., controlled by Piero Ferrari;

•
sponsorship agreement relating to Formula 1 activities with Ferretti S.p.A.;

•
sale of cars to certain members of the Board of Directors of Ferrari N.V. and Exor.

In accordance with IAS 24, transactions with related parties also include compensation to Directors and managers with strategic responsibilities.


F-63

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The amounts of transactions with related parties recognized in the consolidated income statement are as follows:
For the years ended December 31,
2019
2018
2017
Net revenues
Costs (1)
Net financial expenses
Net revenues
Costs (1)
Net financial expenses
Net revenues
Costs (1)
Net financial expenses
(€ thousand)
FCA Group companies
Maserati
143,091

6,275

—

217,922

3,982

—

315,407

4,698

—

FCA US LLC
—

17,954

—

—

28,486

—

6

44,882

—

Magneti Marelli (2)
352

10,444

—

1,589

40,343

—

1,866

36,670

—

Other FCA Group companies
8,637

8,028

1,965

12,106

7,193

1,370

6,754

7,007

1,191

Total FCA Group companies
152,080

42,701

1,965

231,617

80,004

1,370

324,033

93,257

1,191

Exor Group companies (excluding the FCA Group)
281

368

4

311

179

—

283

492

—

Other related parties
610

13,906

31

1,707

12,651

—

2,159

13,666

—

Total transactions with related parties
152,971

56,975

2,000

233,635

92,834

1,370

326,475

107,415

1,191

Total for the Group
3,766,615

2,153,480

42,082

3,420,321

1,953,441

23,563

3,416,890

1,986,792

29,260

______________________________
(1)    Costs include cost of sales, selling, general and administrative costs and other expenses, net.
(2)
FCA completed the sale of Magneti Marelli on May 2, 2019, following which Magneti Marelli (which subsequently operates under the name “Marelli”) is no longer a related party.

Assets and liabilities originating from related party transactions are summarized in the table below:
At December 31,
2019
2018
Trade receivables
Trade payables
Other current assets
Other liabilities
Trade receivables
Trade payables
Other current assets
Other liabilities
(€ thousand)
FCA Group companies
Maserati
48,617

5,449

—

21,821

39,077

6,099

—

30,594

FCA US LLC
—

4,636

—

—

135

6,332

—

—

Magneti Marelli (1)
—

—

—

—

2,774

9,427

—

—

Other FCA Group companies
1,165

3,598

203

581

5,896

4,689

1,481

44

Total FCA Group companies
49,782

13,683

203

22,402

47,882

26,547

1,481

30,638

Exor Group companies (excluding the FCA Group)
350

9

237

207

377

13

—

4

Other related parties
147

2,565

1,295

1,835

208

1,999

5

—

Total transactions with related parties
50,279

16,257

1,735

24,444

48,467

28,559

1,486

30,642

Total for the Group
231,439

711,539

92,830

800,015

211,399

653,751

64,295


589,743

______________________________
(1)
FCA completed the sale of Magneti Marelli on May 2, 2019, following which Magneti Marelli (which subsequently operates under the name “Marelli”) is no longer a related party.


There were no financial assets or financial liabilities originating from related party transactions at December 31, 2019 or December 31, 2018.


F-64

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Emoluments to Directors and Key Management
The fees of the Directors of Ferrari N.V. are as follows:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Directors of Ferrari N.V.
10,260

17,043

17,767

The aggregate compensation to Directors of Ferrari N.V. for year ended December 31, 2019 was €10,260 thousand ( €17,043 thousand in 2018 and €17,767 thousand in 2017), inclusive of the following:
•
€1,786 thousand for salary and other short-term benefits ( €1,080 thousand in 2018 and € 1,277 thousand in 2017); and
•
€8,474 thousand for share-based compensation awarded under the Company’s equity incentive plans, ( €15,963 thousand in 2018, including an acceleration of the costs relating to the equity incentive plan of the former Chairman and Chief Executive Officer (Mr. Sergio Marchionne) and €16,490 thousand in 2017). See Note 21 “Share-based compensation” for additional information related to the equity incentive plans. For the year ended December 31, 2017 only, Non-Executive Directors’ compensation also included €418 thousand that was settled in common shares of the Company. There was no equity-settled compensation for Non-Executive Directors for the years ended December 31, 2019 and 2018.
The aggregate compensation for members of the Senior Management Team (excluding the CEO) in 2019 was €19,839 thousand ( €16,674 thousand in 2018 and €16,015 thousand in 2017), inclusive of the following:

•
€14,671 thousand for salary and short-term incentives ( €13,915 thousand in 2018 and €10,964 thousand in 2017);
•
€5,168 thousand for share-based compensation awarded under the Company’s equity incentive plans ( €2,759 thousand in 2018 and €4,737 thousand in 2017); and
•
for the year ended December 31, 2017 only, €314 thousand of other long-term benefits.

29. COMMITMENTS
Arrangements with key suppliers
From time to time, in the ordinary course of business, the Group enters into various arrangements with key third party suppliers in order to establish strategic and technological advantages. A limited number of these arrangements contain unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services with fixed and determinable price provisions.
Arrangements with sponsors
Certain of the Group’s sponsorship contracts include terms whereby the Group is obligated to purchase a minimum quantity of goods and/or services from its sponsors.

F-65

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Future minimum purchase obligations under these supplier and sponsorship arrangements at December 31, 2019 were as follows:
At December 31, 2019
Due within one year
Due between one and three years
Due between three and five years
Due beyond five years
Total
(€ thousand)
Minimum purchase obligations
72,352

16,208

4,403

—

92,963

Non-cancellable lease agreements
The future aggregate minimum lease payments under non-cancellable leases, mainly relating to the lease of property and cars, are as follows:
At December 31, 2019
Due within one year
Due between one and three years
Due between three and five years
Due beyond five years
Total
(€ thousand)
Future minimum lease payments under lease agreements
20,899

17,242

10,577

14,885

63,603


30. QUALITATIVE AND QUANTITATIVE INFORMATION ON FINANCIAL RISKS
The Group is exposed to the following financial risks connected with its operations:

•
financial market risk (principally relating to foreign currency exchange rates, and to a lesser extent, interest rates), as the Group operates internationally in different currencies;

•
liquidity risk, with particular reference to the availability of funds and access to the credit market, should the Group require, and to financial instruments in general;

•
credit risk, arising both from its normal commercial relations with final clients and dealers, and its financing activities.
These risks could significantly affect the Group’s financial position, results of operations and cash flows, and for this reason the Group identifies and monitors these risks, in order to detect potential negative effects in advance and take the necessary action to mitigate them, primarily through its operating and financing activities and if required, through the use of derivative financial instruments.

The following section provides qualitative and quantitative disclosures on the effect that these risks may have upon the Group. The quantitative data reported in the following section does not have any predictive value. In particular, the sensitivity analysis on finance market risks does not reflect the complexity of the market or the reaction which may result from any changes that are assumed to take place.

Financial market risks

Due to the nature of the Group’s business, the Group is exposed to a variety of market risks, including foreign currency exchange rate risk and to a lesser extent, interest rate risk.
The Group’s exposure to foreign currency exchange rate risk arises from the geographic distribution of the Group’s shipments, as the Group generally sells its models in the currencies of the various markets in which the Group operates, while the Group’s industrial activities are all based in Italy, and primarily denominated in Euro.

F-66

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


The Group’s exposure to interest rate risk arises from the need to fund certain activities and the necessity to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing the Group’s net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.
These risks could significantly affect the Group’s financial position, results of operations and cash flows, and for this reason these risks are identified and monitored, in order to detect potential negative effects in advance and take the necessary actions to mitigate them, primarily through the Group’s operating and financing activities, and if required, through the use of derivative financial instruments.
The Group has in place various risk management policies, which primarily relate to foreign exchange, interest rate and liquidity risks. The Group’s risk management policies permit derivatives to be used for managing exposures to foreign exchange rates and interest rates. Counterparties to these agreements are major financial institutions. Derivative financial instruments can only be executed for hedging purposes.
In particular, the Group used derivative financial instruments as cash flow hedges for the purpose of limiting the negative impact of foreign currency exchange rate fluctuation on forecasted transactions denominated in foreign currencies. Accordingly, as a result of applying risk management policies with respect to foreign currency exchange exposure, the Group’s results of operations have not been fully exposed to fluctuations in foreign currency exchange rates. However, despite these risk management policies and hedging transactions, sudden adverse movements in foreign currency exchange rates could have a significant effect on the Group’s earnings and cash flows.

The Group also enters into interest rate caps as requested by certain of its securitization agreements.
Information on the fair value of derivative financial instruments held is provided in Note 19.

Information on foreign currency exchange rate risk

The Group is exposed to risk resulting from changes in foreign currency exchange rates, which can affect its earnings and equity. In particular:

•
Where a Group company incurs costs in a currency different from that of its revenues, any change in foreign currency exchange rates can affect the operating results of that company. In 2019 , the total trade flows exposed to foreign currency exchange rate risk amounted to the equivalent of 53 percent of the Group’s net revenues ( 49 percent in 2018 ).

•
The main foreign currency exchange rate to which the Group is exposed is the Euro/U.S. Dollar for sales in U.S. Dollar in the United States and other markets where the U.S. Dollar is the reference currency. In 2019 , the value of commercial activity exposed to fluctuations in the Euro/U.S. Dollar exchange rate accounted for approximately 53 percent ( 57 percent in 2018 ) of the total currency risk from commercial activity. In 2019, the commercial activities exposed to the Euro/Pound Sterling exchange rate and to the Euro/Japanese Yen exchange rate exceeded 10 percent (in 2018 only Euro/Pound Sterling exceeded 10 percent ) of the total currency risk from commercial activity. Other significant exposures included the exchange rate between the Euro and the following currencies: Swiss Franc, Chinese Renminbi, Canadian Dollar and Australian Dollar. None of these exposures, taken individually, exceeded 10 percent of the Group’s total foreign currency exchange rate exposure for commercial activity in 2019 . It is the Group’s policy to use derivative financial instruments (primarily forward currency contracts, currency swaps and currency options) to hedge up to 90 percent of certain exposures to foreign currency exchange risk for up to twelve months.

•
Several subsidiaries are located in countries that are outside the Eurozone, in particular the United States, the United Kingdom (branch), Switzerland, Mainland China, Hong Kong, Japan, Australia and Singapore. As the Group’s reporting currency is the Euro, the income statements of those companies are translated into Euro using the average exchange rate for the period and, even if revenues and margins are unchanged in local currency, changes in exchange rates can impact the amount of revenues, costs and profit as restated in Euro.

•
The amount of assets and liabilities of consolidated companies that report in a currency other than the Euro may vary from period to period as a result of changes in exchange rates. The effects of these changes are recognized

F-67

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


directly in equity as a component of other comprehensive income/(loss) under gains/(losses) from currency translation differences.
The Group monitors its principal exposure to translation exchange risk, although there was no specific hedging in this respect at the reporting date.

Exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period or in previous financial statements, are recognized in the consolidated income statement within the net financial income/(expenses) line item or as cost of sales for charges arising from financial services companies. The Group uses specific financial derivatives to hedge certain of these exposures.

The impact of foreign currency exchange rate differences recorded within financial income/(expenses) for the year ended December 31, 2019 , except for those arising on financial instruments measured at fair value, amounted to net losses of €24,237 thousand (net losses of €13,293 thousand and €18,059 thousand for the years ended December 31, 2018 and 2017 , respectively).

All of the Group’s financial services activities are conducted in the functional currency of the related financial services companies, therefore the impact of foreign currency exchange rate differences arising from financial services activities is nil in all periods presented.

Except as noted above, there have been no substantial changes in 2019 in the nature or structure of exposure to foreign currency exchange rate risk or in the Group’s hedging policies.

The potential decrease in fair value of derivative financial instruments held by the Group at December 31, 2019 to hedge against foreign currency exchange rate risk, which would arise in the case of a hypothetical, immediate and adverse change of 10 percent in the exchange rates of the major foreign currencies with the Euro, would be approximately €74,700 thousand ( €106,400 thousand at December 31, 2018 ). Receivables, payables and future trade flows for which hedges have been put in place were not included in the analysis. It is reasonable to assume that changes in foreign currency exchange rates will produce the opposite effect, of an equal or greater amount, on the underlying transactions that have been hedged. The sensitivity analysis is based on currency hedging in place at the end of the period, which can vary during the period and assumes unchanged market conditions other than exchange rates, such as volatility and interest rates. For this reason, it is purely indicative.

Information on interest rate risk

The Group’s exposure to interest rate risk, though less significant, arises from the need to fund financial services activities and the necessity to deploy surplus funds. Changes in market interest rates may have the effect of either increasing or decreasing the Group’s net profit/(loss), thereby indirectly affecting the costs and returns of financing and investing transactions.

The Group’s most significant floating rate financial assets at December 31, 2019 were cash and cash equivalents and certain receivables from financing activities (related to client and dealer financing), while 39 percent of the Group’s gross debt bears floating rates of interest. At December 31, 2019 , a decrease of 10 basis points in interest rates on floating rate financial assets and debt, with all other variables held constant, would have resulted in a decrease in profit before taxes of €205 thousand on an annual basis (a decrease of €251 thousand at December 31, 2018 ). The analysis is based on the assumption that floating rate financial assets and debt which expires during the projected 12 -month period will be renewed or reinvested in similar instruments, bearing the hypothetical short-term interest rates.

Liquidity risk

Liquidity risk arises if the Group is unable to obtain the funds needed to carry out its operations under economic conditions. The main determinant of the Group’s liquidity position is the cash generated by or used in operating and investing activities.

From an operating point of view, the Group manages liquidity risk by monitoring cash flows and keeping an adequate level of funds at its disposal. The main funding operations and investments in cash and marketable securities of the Group are centrally managed or supervised by the treasury department with the aim of ensuring effective and efficient management of the

F-68

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


Group’s liquidity. The Group has established series of policies which are managed or supervised centrally by the treasury department with the purpose of optimizing the management of funds and reducing liquidity risk which include:

• centralizing liquidity management through the use of cash pooling arrangement
• maintaining a conservative level of available liquidity
• diversifying sources of funding
• obtaining adequate credit lines
• monitoring future liquidity requirements on the basis of business planning

Intercompany financing between Group entities is not restricted other than through the application of covenants requiring that transactions with related parties be conducted at arm’s length terms.

Details on the maturity profile of the Group’s financial assets and liabilities and on the structure of derivative financial instruments are provided in Notes 19 and 25. Details of the repayment of derivative financial instruments are provided in Note 19.

The Group has a revolving credit facility of €350 million at December 31, 2019 which was entirely undrawn ( €500 million and entirely undrawn at December 31, 2018).

The Group believes that its total available liquidity (defined as cash and cash equivalents plus undrawn committed credit lines), in addition to funds that will be generated from operating activities, will enable Ferrari to satisfy the requirements of its investing activities and working capital needs, fulfill its obligations to repay its debt and ensure an appropriate level of operating and strategic flexibility. The Group, therefore believes there is no significant risk of a lack of liquidity.

Credit risk

Credit risk is the risk of economic loss arising from the failure to collect a receivable. Credit risk encompasses the direct risk of default and the risk of a deterioration of the creditworthiness of the counterparty.

The maximum credit risk to which the Group is theoretically exposed at December 31, 2019 is represented by the carrying amounts of the financial assets stated in the consolidated statement of financial position sheet and the nominal value of the guarantees provided.

Dealers and clients are subject to a specific evaluation of their creditworthiness. Additionally, it is Group practice to obtain financial guarantees against risks associated with credit granted for the purchase of cars and parts. These guarantees are further strengthened, where possible, by retaining title on cars subject to financing agreement.

Credit positions of material significance are evaluated on an individual basis. Where objective evidence exists that they are uncollectible, in whole or in part, specific write-downs are recognized. The amount of the write-down is based on an estimate of the recoverable cash flows, timing of those cash flows, the cost of recovery and the fair value of any guarantees received.

Receivables from financing activities amounting to €966,448 thousand at December 31, 2019 ( €878,496 thousand at December 31, 2018 ) are shown net of the allowance for doubtful accounts amounting to €7,480 thousand ( €6,457 thousand at December 31, 2018 ). After considering the allowance for doubtful accounts, €59,448 thousand of receivables were overdue (€ 53,800 thousand at December 31, 2018 ). Therefore, overdue receivables represent a minor portion of receivables from financing activities.

Receivables from financing activities relate entirely to the financial services portfolio in the United States and such receivables are generally secured on the titles of cars or other guarantees.

Trade receivables amounting to €231,439 thousand at December 31, 2019 ( €211,399 thousand at December 31, 2018 ) are shown net of the allowance for doubtful accounts amounting to €27,171 thousand ( €24,346 thousand at December 31, 2018 ). After considering the allowance for doubtful accounts, €46,778 thousand of receivables were overdue (€ 36,772 thousand at December 31, 2018 ).



F-69

Ferrari N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
at December 31, 2019 and 2018


31. ENTITY-WIDE DISCLOSURES
The following table presents an analysis of net revenues by geographic location of the Group’s clients:
For the years ended December 31,
2019
2018
2017
(€ thousand)
Italy
363,779

449,312

563,921

Rest of EMEA
1,636,831

1,400,443

1,308,261

Americas (1)
1,010,204

922,639

920,858

Mainland China, Hong Kong and Taiwan
350,330

274,268

282,550

Rest of APAC (2)
405,471

373,659

341,300

Total net revenues
3,766,615

3,420,321

3,416,890

______________________________
(1)
Americas includes the United States of America, Canada, Mexico, the Caribbean and of Central and South America.
(2)
Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia.

The following table presents an analysis of non-current assets other than financial instruments and deferred tax assets by geographic location:
At December 31,
2019
2018
Property, plant and equipment
Goodwill
Intangible assets
Property, plant and equipment
Goodwill
Intangible assets
(€ thousand)
Italy
1,043,821

785,182

837,682

844,218

785,182

644,689

Rest of EMEA
6,309

—

—

2,251

—

—

Americas (1)
14,803

—

—

3,327

—

850

Mainland China, Hong Kong and Taiwan
1,574

—

—

351

—

—

Rest of APAC (2)
3,145

—

256

403

—

258

Total
1,069,652

785,182

837,938

850,550

785,182

645,797

______________________________
(1)
Americas includes the United States of America, Canada, Mexico, the Caribbean and of Central and South America.
(2)
Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia.

32. SUBSEQUENT EVENTS
The Group has evaluated subsequent events through February 18, 2020, which is the date the Consolidated Financial Statements were authorized for issuance.

Under the common share repurchase program, from January 1, 2020 to February 14, 2020, the Company has repurchased an additional 209,326 common shares for a total consideration of €153.2 million . At February 14, 2020 the Company held in treasury an aggregate of 8,849,502 common shares.

On February 18, 2020, the Board of Directors of Ferrari N.V. recommended to the Company’s shareholders that the Company declare a dividend of €1.13 per common share, totaling approximately €210 million . The proposal is subject to the approval of the Company’s shareholders at the Annual General Meeting to be held on April 16, 2020.

F-70

TABLE OF CONTENTS
Part IItem 1. Identity Of Directors, Senior Management and AdvisersItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on The CompanyItem 4A. Unresolved Staff CommentsItem 5. Operating and Financial Review and ProspectsItem 3. A. Selected Financial DataItem 3. D. Risk FactorsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholders and Related Party TransactionsItem 8. Financial InformationItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures About Market RiskItem 12. Description Of Securities Other Than Equity SecuritiesPart IIItem 13. Defaults, Dividends Arrearages and DelinquenciesItem 14. Material Modifications To The Rights Of Security Holders and Use Of ProceedsItem 15. Controls and ProceduresItem 16A. Audit Committee Financial ExpertItem 16B. Code Of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions From The Listing Standards For Audit CommitteesItem 16E. Purchases Of Equity Securities By The Issuer and Affiliated PurchasersItem 16F. Change in Registrant S Certifying AccountantItem 16F. Change in RegistrantItem 16G. Corporate GovernanceItem 16H. Mine Safety DisclosurePart IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. Exhibits

Exhibits

1.1 English translation of the Articles of Association of Ferrari N.V. (incorporated by reference to Exhibit 3.2 to Registration Statement on Form F-1 (File No. 333-205804)) 1.2 English translation of the Deed of Incorporation of Ferrari N.V. (incorporated by reference to Exhibit 3.1 to Registration Statement on Form F-1 (File No. 333-205804)) 2.1 Trust Deed, dated March 16, 2016, between Ferrari N.V. and Citicorp Trustee Company Limited as trustee, relating to 1.5000% Notes due 16 March 2023 (incorporated by reference to Exhibit 2.1 to Form 20-F (File No. 001-37596) filed on March 3, 2017) 2.2 Trust Deed, dated November 16, 2017, between Ferrari N.V. and Citicorp Trustee Company Limited as trustee, relating to 0.250% Notes due 16 January 2021 (incorporated by reference to Exhibit 2.2 to Form 20-F (File No. 001-37596) filed on February 23, 2018) 2.3 Description of Securities registered under Section 12 of the Exchange Act 4.1 Ferrari N.V. Equity Incentive Plan (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-8 filed with the SEC on September 1, 2017, File No. 333-220298) 4.2 Ferrari N.V. 2019-2021 Equity Incentive Plan (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-8 filed with the SEC on May 15, 2019, File No. 333-231490) 8.1 List of subsidiaries of the registrant 12.1 Certification of the Chief Executive Officer Pursuant to the Securities Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2 Certification of the Chief Financial Officer Pursuant to the Securities Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1 Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) 13.2 Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) 23 Consent of Independent Registered Public Accounting Firm